TAX.


TAX POLICY

Legal & General’s policy in respect of tax is to:

  • act with integrity in all tax matters;
  • work together with the tax authorities to build positive long-term relationships;
  • where disputes occur, to address them promptly and openly;
  • manage tax to maximise value for our customers and shareholders.

TAX GOVERNANCE FRAMEWORK

Responsibility for the tax policy and management of tax risk rests with the Group Chief Financial Officer and Group Tax Director who report the Group’s tax position regularly to the Group Audit Committee. In addition, the Group’s Tax Risk status is reported regularly to the Executive Risk Committee.

Good progress was made during 2011 towards achieving a Low Risk rating, and HMRC has confirmed that we are on track to be rated Low Risk during 2012. Progress has been achieved by resolving outstanding areas of disputes with HMRC, adopting a real time working approach, and improving mutual trust.

TOTAL UK TAX CONTRIBUTION

Our contribution to the UK Exchequer is significantly more than the UK corporation tax that we pay on profits. During 2011, through our operations and economic activity in the UK, we have paid and collected taxes in excess of £0.5bn. The composition of this is given below.

The total taxes borne and collected in 2011 were £535m (2010: £470m), an increase of 14%: Corporation tax 15%, Business rates 2%, Stamp duty 5%, Employer’s NIC 7%, Irrecoverable VAT 8%, Employees’ PAYE/NIC collected 20%, VAT and IPT collected 9%, PAYE deducted from annuities 34% (pie chart)

Read a textual description of the chart

Pension payments

One of the biggest components relates to PAYE deducted from annuity payments which in 2011 was in excess of £180m (2010: £168m). The provision of products to help customers secure and enjoy a comfortable retirement is at the core of our business. It is vital that tax relief on pension contributions is retained to encourage saving for retirement.

TAX TRANSPARENCY

The combination of complex tax legislation and prescriptive accounting standards can make it difficult for larger groups to explain the relationship between their profits and the tax they pay. For an insurance group, a further complexity is introduced by the fact that the total tax charge shown in the accounts is made up of tax borne by equity holders (i.e. shareholders) and also tax which is attributable to policyholder returns.

The purpose of this note is to explain the relationship between the corporation tax charge in Legal & General’s income statement and the corporation tax we paid in 2011, which is disclosed in our cash flow statement.

In 2011, Legal & General paid UK corporation tax of £80m (2010: £59m), an increase of 36%. The equity holder tax charge in the accounts is £233m (2010: £272m). The reconciliation between the two is summarised in the table below.

(Download XLS:) Download Excel

Reconciliation of tax charge per income statement to tax paid per cash flow statement

2011
£m

2010
£m

Tax attributable to equity holders (income statement)

233

272

Accounting adjustments, mainly relating to the use of tax losses from prior periods

(147)

(196)

Tax set aside in prior years for disputed tax issues, now resolved

34

26

UK tax payable in respect of 2011 profits

120

102

Tax instalments not payable until 2012 (2011)

(85)

(85)

Tax instalments from prior periods payable in 2011 (2010)

45

42

Tax paid (Consolidated cash flow statement)

80

59

The tax losses arose mainly in 2008, largely as a result of the Global Economic Crisis and have been used to reduce taxable income in subsequent years in accordance with the normal application of UK tax rules and HMRC practice.

HELPING OUR CUSTOMERS

We have started working with the charity Tax Help for Older People (TOP). TOP provides free, expert, caring and independent tax advice for older people (60 years+) who live in a household with a net income of less than £17,000 a year. TOP has already provided our Annuity operations with some insights into common tax questions they get about pensions. In 2012, we hope to build on the existing relationship and develop a partnership which will help us to improve the tax information we give to our customers.

top


Share this page.