Notes to the consolidated financial statements - analysis of items in the primary statements
6. Taxation
Taxation on items charged/(credited) to the income statement
| 2010 £m | 2009 £m | 2008 £m |
|
|---|---|---|---|
| Taxation before exceptional items, remeasurements and stranded cost recoveries | 553 | 517 | 579 |
| Exceptional tax items (see note 3) | 41 | 49 | (170) |
| Taxation on other exceptional items, remeasurements and stranded cost recoveries | 210 | (94) | 198 |
| Taxation on total exceptional items, remeasurements and stranded cost recoveries (see note 3) | 251 | (45) | 28 |
| Total tax charge | 804 | 472 | 607 |
Taxation as a percentage of profit before taxation
| 2010 % | 2009 % | 2008 % |
|
|---|---|---|---|
| Before exceptional items, remeasurements and stranded cost recoveries | 28.0 | 29.2 | 31.7 |
| After exceptional items, remeasurements and stranded cost recoveries | 36.7 | 33.9 | 27.8 |
The tax charge for the year can be analysed as follows:
| 2010 £m | 2009 £m | 2008 £m |
|
|---|---|---|---|
| United Kingdom | |||
| Corporation tax at 28% (2009: 28%; 2008: 30%) | 197 | 37 | 214 |
| Corporation tax adjustment in respect of prior years (i) | (31) | (54) | (156) |
| Deferred tax | 259 | 339 | 42 |
| Deferred tax adjustment in respect of prior years (ii) | (5) | – | 67 |
| 420 | 322 | 167 | |
| Overseas | |||
| Corporate tax | 74 | 105 | 209 |
| Corporate tax adjustment in respect of prior years | (364) | 38 | 31 |
| Deferred tax | 279 | 37 | 191 |
| Deferred tax adjustment in respect of prior years | 395 | (30) | 9 |
| 384 | 150 | 440 | |
| Total tax charge | 804 | 472 | 607 |
- (i)
- The UK corporation tax adjustment in respect of prior years includes a £76m charge (2009: £2m credit; 2008: £9m charge) that relates to exceptional items, remeasurements and stranded cost recoveries.
- (ii)
- The UK deferred tax adjustment in respect of prior years includes a £1m charge (2009: £1m charge; 2008: £2m charge) that relates to exceptional items, remeasurements and stranded cost recoveries.
Taxation on items (credited)/charged to equity
| 2010 £m | 2009 £m | 2008 £m |
|
|---|---|---|---|
| Corporation tax credit on share-based payments | (3) | (2) | (7) |
| Deferred tax charge on share of other comprehensive income of joint ventures and associates | 4 | – | – |
| Deferred tax charge/(credit) on available-for-sale investments | 5 | (7) | (2) |
| Deferred tax credit on revaluation of cash flow hedges | (9) | (19) | (2) |
| Deferred tax charge on share-based payments | – | 3 | 12 |
| Deferred tax (credit)/charge on actuarial (losses)/gains (i) | (175) | (678) | 98 |
| (178) | (703) | 99 | |
| Total tax (credit)/charge recognised in the consolidated statement of comprehensive income | (175) | (704) | 94 |
| Total tax (credit)/charge relating to share-based payments recognised directly in equity | (3) | 1 | 5 |
| (178) | (703) | 99 |
- (i)
- 2010 includes a £42m charge relating to a change in US tax legislation under the Patient Protection and Affordable Care Act.
The tax charge for the year after exceptional items, remeasurements and stranded cost recoveries is higher than (2009: higher; 2008: lower) the standard rate of corporation tax in the UK of 28% (2009: 28%; 2008: 30%). The differences are explained below:
| Before exceptional items, remeasurements and stranded cost recoveries 2010 £m | After exceptional items, remeasurements and stranded cost recoveries 2010 £m | Before exceptional items, remeasurements and stranded cost recoveries 2009 £m | After exceptional items, remeasurements and stranded cost recoveries 2009 £m | Before exceptional items, remeasurements and stranded cost recoveries 2008 £m | After exceptional items, remeasurements and stranded cost recoveries 2008 £m |
|
|---|---|---|---|---|---|---|
| Profit before taxation | ||||||
| Before exceptional items, remeasurements and stranded cost recoveries | 1,974 | 1,974 | 1,770 | 1,770 | 1,829 | 1,829 |
| Exceptional items, remeasurements and stranded cost recoveries | – | 219 | – | (376) | – | 353 |
| Profit before taxation | ||||||
| from continuing operations | 1,974 | 2,193 | 1,770 | 1,394 | 1,829 | 2,182 |
| Profit from continuing operations multiplied | ||||||
| by rate of corporation tax in the UK of 28% (2009: 28%; 2008: 30%) | 553 | 614 | 496 | 390 | 549 | 655 |
| Effects of: | ||||||
| Adjustments in respect of prior years | (82) | (5) | (45) | (46) | (60) | (49) |
| Expenses not deductible for tax purposes | 62 | 237 | 76 | 82 | 102 | 117 |
| Non-taxable income | (6) | (131) | (35) | (34) | (75) | (51) |
| Adjustment in respect of foreign tax rates | 37 | 77 | 38 | 32 | 25 | 67 |
| Impact of share-based payments | – | – | 1 | 1 | 2 | 2 |
| Remeasurement of deferred tax – change in UK tax rate | – | – | – | – | – | (170) |
| Other | (11) | 12 | (14) | 47 | 36 | 36 |
| Total taxation from continuing operations | 553 | 804 | 517 | 472 | 579 | 607 |
| % | % | % | % | % | % | |
| Effective income tax rate | 28.0 | 36.7 | 29.2 | 33.9 | 31.7 | 27.8 |
Factors that may affect future tax charges
A number of changes to the UK corporation tax system were announced in the 2010 Budget Report which have been enacted in the Finance Act 2010. The impact of these is not considered to be material to the future tax charge in the UK.
There is currently ongoing consultation on the reform of the controlled foreign company legislation. The outcome of the consultation process will not be known for some time and we will monitor the impact of the taxation on our holdings in our overseas operations.
The worldwide debt cap, which restricts the amount of finance expense available for UK tax purposes, will apply for accounting periods ending 31 March 2011 onwards but is not expected to have a material effect on our future tax charge.
In connection with the US, on 23 March 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into law. This legislation includes a new tax that effectively eliminates the tax free treatment applied to the subsidy National Grid receives from the US government’s Medicare Part D program. Therefore an increase in the effective tax rate will apply for accounting periods ending 31 March 2011 onwards but this is expected to be minimal.