12.1 Accounting policy
Tax expense represents the sum of current tax and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items charged or credited in other comprehensive income or directly to equity, in which case the associated tax is also dealt with in other comprehensive income or directly in equity.
Current tax is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
12.2 Income tax costs
|Adjustments in respect of prior years||0.3||(0.8)|
|Total current tax, continuing operations||40.7||41.0|
|Origination and reversal of temporary taxable differences||(10.3)||(4.2)|
|Adjustments in respect of prior years||1.2||(0.6)|
|Total deferred tax, continuing operations||(9.1)||(4.8)|
|Total income tax costs||62.7||58.9|
|Total income tax costs attributable to:|
|Continuing operations||— Ordinary activities||29.6||41.9|
| ||— Exceptional items||2.0||(5.7)|
|Total income tax costs||62.7||58.9|
The Group's total income tax costs relating to exceptional items are analysed in the following table:
|Amortisation of intangibles||6.7||7.2|
|Gains relating to employee benefits plans||—||(3.3)|
|Disposal of continuing operations||(1.9)||0.4|
|Total tax (charge)/credit on exceptional items||(2.0)||5.7|
Tax credited in the Group statement of comprehensive income in the year amounted to £14.8m (2011: £11.9m charge), all of which related to net actuarial gains and losses on employee benefits plans.
The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could, adversely or positively, impact the Group's tax charge in the future. Continuing losses, or insufficiency of taxable profit to absorb all expenses, in any subsidiary could have the effect of increasing tax charges in the future, relative to 2012, as effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in notes 3.4 and 12.1.
12.3 Reconciliation of income tax costs to profit before tax
|Profit before tax||18.4||141.4|
|Tax at the UK corporation tax rate|
of 24.5% (2011: 26.5%)
|Overseas tax rate differences||8.8||7.3|
|Amortisation of intangibles||(2.4)||(2.6)|
|Expenses not deductible for tax purposes||14.1||3.4|
|Deferred tax assets not recognised||11.0||(4.8)|
|Recognition of previously unrecognised tax losses||(11.7)||(5.7)|
|Adjustments in respect of prior years||1.5||(1.4)|
|Total income tax costs||31.6||36.2|
12.4 Deferred tax
|As at 1 January 2011||(3.8)||4.6||5.3||(88.7)||6.8||(75.8)|
|Charge to Group statement of comprehensive income||—||—||(11.9)||—||—||(11.9)|
|Credit/(charge) to Group income statement||0.2||0.8||(3.8)||4.3||0.3||1.8|
|As at 1 January 2012||(3.3)||5.1||(10.4)||(83.6)||6.5||(85.7)|
|Credit to Group statement of comprehensive income||—||—||14.8||—||—||14.8|
|Credit/(charge) to Group income statement||(0.3)||(1.0)||1.1||2.1||(0.2)||1.7|
|Transferred to held for sale||—||—||(0.8)||0.1||(1.0)||(1.7)|
|As at 31 December 2012||(1.5)||—||3.1||(49.6)||5.2||(42.8)|
|Recognised in the Group balance sheet as:|
|Non-current deferred tax assets||17.9||20.8|
|Non-current deferred tax liabilities||(60.7)||(106.5)|
|Net total deferred tax liabilities||(42.8)||(85.7)|
Tax loss carry-forwards and other temporary differences of £7.0m (2011: £1.6m) were recognised by subsidiaries reporting a loss in 2011 or 2012. On the basis of approved business plans of these subsidiaries, the Directors consider it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits.
The total deferred tax asset not recognised as at 31 December 2012 was £336.6m (2011: £483.7m), as analysed below. In accordance with the accounting policy in note 12.1, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable. In total, there was a decrease of £147.1m (2011: increase £0.7m) in net unrecognised deferred tax assets during the year.
|Capital losses available to offset future UK capital gains (may be carried forward indefinitely)||38.0||41.9|
|Unrelieved US interest (may be carried forward indefinitely)||91.8||92.3|
|UK ACT credits (may be carried forward indefinitely)||13.1||13.1|
|Other timing differences||49.4||105.5|
|Total deferred tax not recognised||336.6||483.7|
As at 31 December 2012, the Group had total operating losses carried forward with a tax value of £144.3m (2011: £236.0m).
|Losses available to set against future US taxable income:|
|Due to expire in 2020||—||7.6|
|Due to expire 2022 to 2031||34.9||95.4|
|US operating losses||34.9||103.0|
|Losses available to set against future UK taxable income (may be carried forward indefinitely)||87.5||101.5|
|Losses available to set against future taxable income in ROW:|
|Due to expire within 5 years||7.9||11.8|
|Due to expire between 5 and 20 years||2.0||4.2|
|Carried forward indefinitely||12.0||15.5|
|ROW operating losses||21.9||31.5|
|Total net operating losses||144.3||236.0|
The above losses available relating to the rest of the world arise in a number of countries and are not individually significant, reflecting the spread of the Group's operations.
As at 31 December 2012, the Group had US tax credits carried forward with a tax value of £3.5m (2011: £10.2m) as follows:
|US research and experimentation credits (due to expire 2018 to 2031)||1.0||2.8|
|US foreign tax credits (due to expire 2014 to 2018)||2.5||7.4|
|US tax credits||3.5||10.2|
Due to changes in UK tax law enacted in 2009 exempting dividends received from UK tax, there are no temporary differences associated with investments in subsidiaries and interests in joint ventures for which deferred tax liabilities have not been recognised.
From 1 April 2012, the UK corporation tax rate reduced to 24% from 25%. A further UK corporation tax rate reduction to 23% was substantially enacted on 3 July 2012 and will have effect from 1 April 2013. It is the UK Government's intention to enact legislation which will reduce the main rate of UK corporation tax to 22% by 2014, although this has not yet been substantively enacted under IFRS. Accordingly, the Group's closing UK deferred tax liability has been provided using a tax rate of 23%. The impact of using this lower tax rate was to increase the exceptional tax credit relating to the amortisation of intangible assets from £4.7m to £6.7m.