Michael holds 10000 partly paid up £1 redeemable shares in
Bonus plc. The amount paid up is 75 pence per share. The company
uses its shareholders’ funds to credit the partly paid shares
to make them fully paid. Michael has received a non-qualifying
distribution of £2500, and is treated as having paid income
tax on the distribution at the dividend ordinary rate, that is
£250.
Shortly afterwards, Bonus plc repays 25% of its share
capital. Michael now holds 7500 shares and has received a
qualifying distribution of £2500. The tax credit is £278
(2500 x 1/9) making a gross amount of £2778. Tax at the
dividend ordinary rate of 10% is £277, of which £250 has
been satisfied by the notional income tax on the non-qualifying
distribution.
If Michael is liable at the dividend upper rate the tax payable on the non-qualifying distribution will be
| 2500 @ 32.5% | 812.50 |
| Less notional tax | 250.00 |
| Additional tax due | 562.50 |
Michael’s liability on the qualifying distribution will
be on the gross distribution of £2778 (2500 + the tax credit
of 278).
| Gross distribution 2778 @ 32.5% | 902.85 |
| Less tax credit | 278.00 |
| Tax due | 624.85 |
| Less tax paid on non-qualifying distribution | 562.50 |
| Additional tax due | 62.35 |
