Can anyone explain a split rate tax system in simplistic terms?
Suppose that your company has taxable income of £1,000,000, and that you pay a dividend of £100,000. The tax rate might be 20% on retained earnings, but only 15% on earnings distributed as dividends. Thus, your total tax would be:
(15% × £100,000) + (20% × £900,000)
= £15,000 + £180,000
= £195,000.