34 Tax.

34 Tax.

The tax shown in the consolidated 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 charged or credited directly to equity.

The tax shown in the income statement has been apportioned between that attributable to policyholders and that attributable to equity holders.

The judgements made in arriving at tax balances in the financial statements are discussed in the notes below.

Tax Rates

The table below provides a summary of the current tax and deferred tax rates for the year.

(XLS:) Tax – Rates

 

2013

2012

 

Current tax

Deferred tax

Current tax

Deferred tax

UK

23.3%

20.0%

24.5%

23.0%

USA

35.0%

35.0%

35.0%

35.0%

France

38.0%

34.4%

36.1%

34.4%

Netherlands

25.0%

25.0%

25.0%

25.0%

Ireland

12.5%

12.5%

12.5%

12.5%

(i) Tax charge in the Income statement

(XLS:) Tax charge in the Income statement

 

2013
£m

2012
£m

Current tax

104

183

 

 

 

Deferred tax

 

 

– Movement in temporary differences

308

225

– Reduction in UK corporate tax rate to 20% (2012: 23%)

3

7

Total deferred tax

311

232

 

 

 

Adjustment to equity holders tax in respect of prior years

4

(6)

Total tax

419

409

Less tax attributable to policyholder returns

(181)

(174)

Tax attributable to equity holders

238

235

The total movement in deferred tax of £311m (2012: £232m) disclosed above differs from the amount of £302m (2012: £241m) disclosed in the note below by £9m (2012: £9m) being the deferred tax prior year adjustment included within the ‘Adjustment to equity holders’ tax in respect of the prior years’ line.

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

(XLS:) Tax – Differences in income tax calculation

 

2013
£m

2012
£m

Profit before tax attributable to equity holders

1,134

1,033

Tax calculated at 23.25% (2012: 24.5%)

264

254

Effects of:

 

 

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

4

(6)

Lower tax on Shareholder Retained Capital

(30)

Income not subject to tax, such as dividends

(6)

(3)

Change in valuation of tax losses

(19)

8

Higher rate of tax on profits taxed overseas

23

14

Expenses not deductible for tax purposes

(11)

(5)

Impact of reduction in UK corporate tax rate to 20% (2012: 23%) on deferred tax balances

3

7

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

(19)

(5)

Other

(1)

1

Tax attributable to equity holders

238

235

 

 

 

Equity holders’ effective tax rate

21.0%

22.7%

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

Tax calculated on profit before tax at 23.25% (2012: 24.5%) would amount to £306m (2012: £296m). The difference between this number and the total tax of £419m (2012: £409m) is made up of the reconciling items above, which total £(26)m (2012: £(19)m), and the effect of the apportionment methodology on tax applicable to policyholder returns of £139m (2012: £132m).

(ii) Tax charge to Equity

(XLS:) Tax – Deferred tax recognised directly in equity

Deferred tax recognised directly in equity

2013
£m

2012
£m

Relating to net gains or losses recognised directly in equity

(74)

(22)

Exchange gains

(4)

13

Deferred tax recognised directly in equity

(78)

(9)

(iii) Disclosure of tax effects relating to each component of other comprehensive income

(XLS:) Tax – Disclosure of tax effects relating to each component of other comprehensive income

 

Before tax
2013
£m

Tax credited/ (charged)
2013
£m

After tax
2013
£m

Before tax
2012
£m

Tax credited/ (charged)
2012
£m

After tax
2012
£m

Actuarial (losses)/gains on defined benefit pension schemes

(168)

23

(145)

(120)

13

(107)

Actuarial losses/(gains) on defined benefit pension schemes transferred to unallocated divisible surplus

56

(7)

49

46

(5)

41

Exchange differences on translation of overseas operations

(16)

(16)

(13)

(13)

Net change in financial investments designated as available-for-sale

(135)

47

(88)

58

(26)

32

Other comprehensive income

(263)

63

(200)

(29)

(18)

(47)

(iv) Deferred tax – Balance sheet

Deferred tax assets and liabilities have been recognised/(provided) for the temporary differences and unused tax losses. The recognition of a deferred tax asset in respect of tax losses is supported by management’s best estimate of future taxable profits to absorb the losses in future years. These taxable profit projections are based on assumptions consistent with those used for EEV reporting purposes. Deferred tax assets and liabilities have been offset to the extent it is permissible under the accounting standard. The net movement in deferred tax assets and liabilities during the year is as follows:

(a) UK deferred tax asset

(XLS:) Tax – UK deferred tax asset 2013

 

Net tax asset as at 1 January 2013
£m

Tax (charged)/ credited to the income statement
£m

Tax (charged)/ credited to equity
£m

Transfers in on acquisitions
£m

Net tax asset as at 31 December 2013
£m

Realised and unrealised losses on investments

14

(174)

(160)

Excess of depreciation over capital allowances

43

(19)

24

Excess expenses

234

(42)

192

Deferred acquisition expenses

(77)

5

(72)

Difference between the tax and accounting value of insurance contracts

(99)

29

(70)

Accounting provisions

9

(18)

4

13

8

Trading losses

128

(48)

13

93

Pension fund deficit

76

(2)

19

93

Purchased interest in long term business

(12)

2

(16)

(26)

UK deferred tax asset

316

(272)

28

10

82

(XLS:) Tax – UK deferred tax asset 2012

 

Net tax asset as at 1 January 2012
£m

Tax (charged)/ credited to the income statement
£m

Tax (charged)/ credited to equity
£m

Transfers in on acquisitions
£m

Net tax asset as at 31 December 2012
£m

Realised and unrealised losses on investments

147

(133)

14

Excess of depreciation over capital allowances

43

43

Excess expenses

233

1

234

Deferred acquisition expenses

(80)

6

(3)

(77)

Difference between the tax and accounting value of insurance contracts

(72)

(27)

(99)

Accounting provisions

9

9

Trading losses

159

(31)

128

Pension fund deficit

72

(7)

11

76

Purchased interest in long term business

(18)

6

(12)

UK deferred tax asset

493

(185)

8

316

(b) Overseas deferred tax liabilities

(XLS:) Tax – Overseas deferred tax liabilities 2013

 

Net tax liability as at 1 January 2013
£m

Tax (charged)/ credited to the income statement
£m

Tax (charged)/ credited to equity
£m

Transfers in on acquisitions
£m

Net tax liability as at 31 December 2013
£m

Realised and unrealised gains on investments

(84)

4

47

(33)

Deferred acquisition expenses

(222)

(22)

3

(241)

Difference between the tax and accounting value of insurance contracts

(264)

32

3

(229)

General provisions

(20)

(20)

Trading losses

185

(24)

(3)

158

Pension fund deficit

3

3

Overseas deferred tax liabilities

(382)

(30)

50

(362)

(XLS:) Tax – Overseas deferred tax liabilities 2012

 

Net tax liability as at 1 January 2012
£m

Tax (charged)/ credited to the income statement
£m

Tax (charged)/ credited to equity
£m

Transfers in on acquisitions
£m

Net tax liability as at 31 December 2012
£m

Realised and unrealised gains on investments

(57)

(7)

(20)

(84)

Deferred acquisition expenses

(217)

(22)

17

(222)

Difference between the tax and accounting value of insurance contracts

(303)

17

22

(264)

Trading losses

246

(43)

(18)

185

Pension fund deficit

4

(1)

3

Overseas deferred tax liabilities

(327)

(56)

1

(382)

Unrecognised deferred tax assets

The Group has the following unrelieved tax losses carried forward as at 31 December 2013. No deferred tax asset has been recognised in respect of these tax losses as at 31 December 2013 (or 31 December 2012), as it is not probable that there will be suitable taxable profits emerging in future periods against which to relieve them. Relief for these tax losses will only be recognised if it becomes probable that suitable taxable profits will arise in future periods. The potential deferred tax asset unrecognised as at 31 December 2013 is £29m (2012: £51m).

(XLS:) Tax – Unrecognised deferred tax assets

 

Gross
2013
£m

Tax
2013
£m

Gross
2012
£m

Tax
2012
£m

Trading losses

43

7

24

3

Realised and unrealised losses on investments

169

18

186

40

Post cessation losses

5

1

19

4

Unrelieved expenses

5

1

Unrelieved interest payments on debt instruments

14

3

14

3

Unrecognised deferred tax asset

231

29

248

51

(v) Current tax – Balance sheet

(XLS:) Tax – Current tax assets

 

2013
£m

2012
£m

Tax due within 12 months

98

8

Tax due after 12 months

212

186

Current tax assets

310

194

(XLS:) Tax – Current tax liabilities

 

2013
£m

2012
£m

Tax due within 12 months

14

68

Tax due after 12 months

Current tax liabilities

14

68

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