Why does Dividend tax reduce personal tax free amount?

[RMO]

I know virtually nothing about how the tax system works so please excuse me if this is a stupid question.

Just received 18/19 tax code notice. It states personal allowance is £11850. I get that - first £11850 of earnings come tax free. Then it states Less Dividend Tax of X making the actual tax free amount significantly lower. Why is the personal allowance lowered by Dividend Tax? My logic suggests that a tax free allowance is just that and tax will not be incurred until after that figure has been reached in earnings. Surely any dividend tax should be charged on dividends paid over and above salary and also only after they exceed the £2000 mark (what I gather is the amount of dividend revenue one can earn before the dividend payments are taxed).

Flummoxed and looking for an easy to understand explanation.

Thanks very much in anticipation.

[robbob]

My logic suggests that a tax free allowance is just that and tax will not be incurred until after that figure has been reached in earnings. Surely any dividend tax should be charged on dividends paid over and above salary and also only after they exceed the £2000 mark (what I gather is the amount of dividend revenue one can earn before the dividend payments are taxed).

Your logic is sound

HMRC's logic is that your dividend income is projected to exceed the 2k mark therefore they need to adjust your code downover to ensure the resulting tax is collected in year, traditionally you have always had the option to get these potential income streams removed from the tax code if you wish and default to advising at the year end once the liability (if any is known).

I am presuming something presented to hmrc has lead them to believe your divis will exceed 2k - this may simply be due to the fact that you had 5k this year in the knowledge that would not have a tax bill.