Subsection (2) applies if, ignoring this section, at least some of an individual's income would be charged to income tax at the dividend ordinary rate, the dividend upper rate or the dividend additional rate.

Income tax is charged at the dividend nil rate (rather than the dividend ordinary rate, dividend upper rate or dividend additional rate) on one or more amounts of the individual's income as follows—

• Step 1 Identify the amount (“D”) of the individual's income which would, ignoring this section, be charged at the dividend ordinary rate.Rule 1A: If D is more than F2£500, the first F2£500 of D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1B: If D is equal to F2£500, D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1C: If D is less than F2£500 but more than nil, D is charged at the dividend nil rate (rather than the dividend ordinary rate).

• Step 2 If D is less than F2£500, identify the amount (“U”) of the individual's income which would, ignoring this section, be charged at the dividend upper rate.Rule 2A: If the total of D and U is more than F2£500—

  1. a

     the first £M of U is charged at the dividend nil rate (rather than the dividend upper rate), where £M is the difference between F2£500 and D, and

  2. b

     the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.

  Rule 2B: If the total of D and U is equal to F2£500, U is charged at the dividend nil rate (rather than the dividend upper rate), and the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.Rule 2C: If the total of D and U is less than F2£500 but more than nil, U is charged at the dividend nil rate (rather than the dividend upper rate).

• Step 3 If the total of D and U is less than F2£500, identify the amount (“A”) of the individual's income which would, ignoring this section, be charged at the dividend additional rate.Rule 3A: If the total of D, U and A is more than F2£500, the first £X of A is charged at the dividend nil rate (rather than the dividend additional rate), where £X is the difference between—

  • F2£500, and

  • the total of D and U,

  and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.Rule 3B: If the total of D, U and A is less than or equal to F2£500, A is charged at the dividend nil rate (rather than the dividend additional rate), and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.