Dividend "Tax Credits" explained
For those that are interested, here is an explanation of what a Dividend Tax Credit is and how this is used to calculate the tax owed on Dividends received.
If a company pays out a Dividend to a share holder of say £1,000 - this is known as a Net Dividend. HMRC then adds a "tax credit" onto this to calculate the Gross Dividend. The Net Dividend is always 90% of the Gross Dividend, so to calculate Gross from Net you divide Net by 0.9. (£1000 / 0.9) = £1,111.11.
HMRC then writes off 10% of the tax due on the Gross Dividend (this is because the company has already paid corporation tax on its profits). In this case 10% of £1,111.11 is £111.11. So this amount of tax has effectively already been paid.
Let's say the shareholder's gross taxable income for the year is already over the £35,000 threshold - this means that they must pay 32.5% of the Gross dividend as tax. 32.5% of £1,111.11 is £361.11, however we can deduct from this the £111.11 Tax already accounted for: £361.11 - £111.11 = £250. So a total tax of £250 must be paid on the initial Net dividend of £1,000. This works out nicely as 25% of the Net Dividend.