12 TAX.


The tax shown in the income statement comprises current and deferred tax.

Current Tax

Current tax comprises tax payable on current period profits, adjusted for non-tax deductible or non-taxable items, and any adjustments to tax payable in respect of previous periods. Current tax is recognised in the income statement unless it relates to items which are recognised in other comprehensive income.

Deferred Tax

Deferred tax is calculated on differences between the accounting value of assets and liabilities and their respective tax values. Deferred tax is also recognised in respect of unused tax losses to the extent it is probable that future taxable profits will arise against which the losses can be utilised. Deferred tax is charged or credited to the income statement, except when it relates to items recognised in other comprehensive income.

For presentation, the tax shown in the income statement has been apportioned between that attributable to policyholders’ returns and equity holders’ profits.

For this apportionment, the equity holders’ tax on certain long term business is estimated using equity holders’ profit after tax, which is grossed up at the statutory tax rate. For the remaining long term business, the effective tax rate for that entity is used. The balance of income tax associated with UK long term business is classified as income tax attributable to policyholders’ returns.

The judgements made in arriving at tax balances in the financial statements are discussed in Note 24 and Note 25 where relevant.

Tax Rates

Following the 2010 Budget announcement, the rate of UK corporation tax is expected to reduce progressively to 23% by 1 April 2014. To calculate the current tax on UK profits, the rate of tax used is 26.5% (2010: 28%), which is the UK average rate of corporation tax applicable for the year.

The UK rate of tax used for the calculation of deferred tax is 25% (2010: 27%), which is the rate of corporation tax that is expected to apply when the differences as mentioned above reverse. This rate will apply from 1 April 2012 (2010: 1 April 2011) onwards.

To calculate current and deferred tax on overseas profits, the relevant tax rates applicable in those countries have been applied.

(Download XLS:) Download Excel

 

Note

2011
£m

2010
£m

1.

£60m deferred tax charge is included within ‘Adjustment to equity holders’ tax in respect of prior years’ as a deferred tax prior year adjustment.

Current tax

 

89

167

 

 

 

 

Deferred tax

 

 

 

– Movement in temporary differences

 

(6)

341

– Reduction in UK corporate tax rate to 25% (2010: 27%)

 

6

5

Total deferred tax1

24

346

 

 

 

 

Adjustment to equity holders’ tax in respect of prior years

 

(34)

(26)

Total tax

 

55

487

Less tax attributable to policyholder returns

 

178

(215)

Tax attributable to equity holders

 

233

272

The tax attributable to equity holders differs from the tax calculated at the standard UK corporation tax rate as follows:

(Download XLS:) Download Excel

 

2011
£m

2010
£m

Profit before tax attributable to equity holders

956

1,092

Tax calculated at 26.5% (2010: 28%)

253

306

Effects of:

 

 

Adjustments in respect of prior years, mainly relating to resolution of tax issues with HMRC

(34)

(26)

Differences between taxable and accounting investment gains, e.g. RPI relief

(16)

Lower tax on Shareholder Retained Capital

(20)

(7)

Capital allowances in excess of depreciation

(2)

Income not subject to tax, such as dividends

(5)

(3)

Net write off of prior period tax losses

15

Higher rate of tax on profits taxed overseas

12

10

Expenses not deductible for tax purposes

5

8

Impact of reduction in UK corporate tax rate to 25% (2010: 27%) on deferred tax balances

6

5

Other

1

(3)

Tax attributable to equity holders

233

272

Tax calculated on profit before tax at 26.5% (2010: 28%) would amount to £206m (2010: £366m). The difference between this number and the total tax of £55m (2010: £487m) is made up of the reconciling items above, which total £(20)m (2010: £(34)m), and the effect of the apportionment methodology on tax applicable to policyholder returns of £(131)m (2010: £155m).

(Download XLS:) Download Excel

Equity holders’ effective tax rate

2011
%

2010
%

UK

23.1

24.3

Overseas

33.6

28.7

Total

24.4

24.9

Equity holders’ effective tax rate is calculated by dividing the tax attributable to equity holders over profit before tax attributable to equity holders.

(Download XLS:) Download Excel

Deferred tax recognised directly in equity

2011
£m

2010
£m

Relating to net gains or losses recognised directly in equity

(16)

2

Exchange gains

5

7

Deferred tax recognised directly in equity

(11)

9

top


Share this page.