A shareholder is entitled to claim a tax credit in a number of situations. These include where a Jersey resident shareholder of a company has been assessed and charged to tax on:
- deemed interim dividend from a Jersey trading company
- deemed dividend from a Jersey financial services company
- a profit attributed from an investment holding or personal services company
- a shareholder loan
In any of these circumstances, the shareholder is entitled to claim a tax credit when a cash dividend (paid out of the profits subject to the above) is assessed and charged to tax or when a shareholder loan has been repaid.
The tax credit is calculated using a tax effective rate.
A tax effective rate is the percentage of tax you pay on each £1 of income charged to tax.
If the shareholder had no tax to pay on any of the above when they were assessed and charged on the shareholder, because their income was below the tax exemption threshold, then the tax effective rate is 0%.
How to calculate a tax effective rate: Example 1
This is the first example of how to calculate a tax effective rate for the purpose of determining a dividend or shareholder loan tax credit.
Marginal relief calculation
| Calculation of income | Allowances, reliefs and deductions |
|---|
| Fees | £50,000 | Personal allowance single | £1,040 |
| Bank interest | £1,000 | Earned income allowance | £1,360 |
| Shareholder loan | £10,000 | Qualifying interest paid | *£5,000 |
| Taxed at source dividend (20%) | £2,000 | Employment expenses | £200 |
| | Pension contributions | £3,000 |
| Total | £63,000 | | £10,600 |
*This figure is calculated in the following way:
| qualifying interest paid = £12,500 (see below - calculation of marginal relief) |
| but sum is restricted under Article 90D of the Income Tax Law: |
| £12,500 x 60% = £7,500 |
| £12,500 less £7,500 = £5,000 |
| Calculation of marginal relief |
|---|
| Total (see above) | | £63,000 |
| Less | | |
| Qualifying interest | *£12,500 | |
| Employment expenses | £200 | |
| Pension contributions | £3,000 | £47,300 |
| Exemption threshold | £12,650 | £34,650 |
| Marginal relief calculation | | £34,650 @ 27% = £9,355.50 |
*Not restricted in marginal relief calculation - as per Article 92C (2) of the Income Tax Law.
| Calculation of total tax payable |
|---|
| Income | £63,000 | | |
| Less allowances etc. | £10,600 | | |
| | £52,400 | @ 20% | £10,480 |
| Less marginal relief | | | £1,124 |
| Total tax payable | | | £9,355.50 |
Income for the purpose of calculating the tax effective rate
Income is calculated in the following way:
| Calculating the income for tax effective rate |
|---|
| Employment (fees) | | £50,000 |
| Less | | |
| Employment expenses | £200 | |
| Pension contributions | £3,000 | |
| | = £3,200 | £46,800 |
| Plus | | |
| Bank interest | | £1,000 |
| Shareholder loan | | £10,000 |
| Taxed at source dividend (20%) | | £2,000 |
| Income | | £59,800 |
Total tax payable / income x 100 = % tax effective rate
£9,355.50 / £59,800 x 100 = 15.64%
Credit available when shareholder loan of £10,000 is repaid.
£10,000 @ 15.64% = £1,564 credit
If the tax deducted at source on the dividend showed a tax credit of 10% then the total tax payable figure would remain the same (ie £9,355.50) and so would the 15.64% tax effective rate.
How to calculate a tax effective rate: Example 2
Year of assessment
| Income | Allowances, reliefs and deductions |
|---|
| Fees | £79,000 | Personal allowance single | £1,040 |
| Bank interest | £1,000 | Earned income allowance | £1,360 |
| Shareholder loan | £10,000 | Qualifying interest paid | *£5,000 |
| Taxed at source dividend (20%) | gross £2,000 | Employment expenses | £200 |
| | | Pension contributions | £3,000 |
| Total | £92,000 | | £10,600 |
* Qualifying interest paid = £12,500.
Restricted under Article 90D of the Income Tax Law.
£12,500 x 60% = £7,500
£12,500 less £7,500 = £5,000
| Total tax payable |
|---|
| Income | £92,000 | |
| Less allowances etc. | £10,600 | |
| Total tax payable | £81,400 @ 20% = | £16,280 |
Income for the purpose of calculating the tax effective rate
Income is calculated in the following way:
| Calculating the income for tax effective rate |
|---|
| Employment (fees) | | £79,000 |
| Less | | |
| Employment expenses | £200 | |
| Pension contributions | £3,000 | |
| | = £3,200 | £75,800 |
| Plus | | |
| Bank interest | | £1,000 |
| Shareholder loan | | £10,000 |
| Taxed at source dividend (20%) | | gross £2,000 |
| Income | | £88,000 |
Total tax payable / income x 100 = % tax effective rate
£16,280 / 88,800 x 100 = 18.33%
Credit available when shareholder loan of £10,000 is repaid.
£10,000 @ 18.33% = £1,833 credit
If the tax deducted at source on the dividend showed a tax credit of 10% then total tax payable figure would remain the same (ie £16,280) and so would the 18.33% tax effective rate.
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