The major components of income tax expense for the years ended 31 December 2006 and 2005 are:
| Consolidated income statement |
2006
£m |
2005
£m |
| Current income tax |
| Current income tax charge |
53.1 |
43.1 |
| Adjustment in respect of prior years |
(4.6) |
(1.0) |
| Deferred income tax |
| Origination and reversal of temporary differences |
5.3 |
6.9 |
| Adjustment in respect of prior years |
(0.3) |
(3.2) |
| |
53.5 |
45.8 |
| Consolidated statement of recognised income and expense |
2006
£m |
2005
£m |
| Deferred income tax related to items charged/(credited) directly to equity |
| Current income tax deduction on exercise of stock options in excess of share based payments |
(7.6) |
– |
| Deferred income tax movement in relation to share based payments |
(7.2) |
(2.7) |
| Deferred income tax movement in relation to actuarial gains/(losses) on defined benefit plans |
3.8 |
(1.0) |
| |
(11.0) |
(3.7) |
A reconciliation between tax expense and the product of accounting profit multiplied by the UK corporation tax rate for the years ended 31 December 2006 and 2005 is as follows:
| |
2006
£m |
2005
£m |
| Accounting profit before tax |
193.2 |
153.1 |
| Notional charge at UK corporation tax rate of 30% (2005: 30%) |
58.0 |
45.9 |
| Adjustments in respect of current income tax of prior years |
(4.6) |
(1.0) |
| Adjustments in respect of deferred tax of prior years |
(0.3) |
(3.2) |
| Non-deductible expenses |
1.6 |
1.5 |
| Impairment |
– |
3.6 |
| Attributable to lower tax rates in overseas jurisdictions |
(1.2) |
– |
| Stock option relief |
– |
(1.0) |
| At the effective tax rate of 27.7% (2005: 27.7% before impairment charge) |
53.5 |
45.8 |
| Total tax expense reported in the income statement |
53.5 |
45.8 |
The tax charge for the year ended 31 December 2006 was £53.5m (2005: charge of £45.8m) and is after a prior year net credit of £4.6m resulting from the successful resolution of issues with relevant tax authorities. The tax charge is equivalent to an underlying effective tax rate of 27.7% (2005: 27.7% before impairment). In addition, a net tax credit of £11.0m has been credited directly to equity including £7.6m in respect of realised stock option gains which resulted in a corresponding reduction in cash tax liabilities for the year ended 31 December 2006.
Deferred income tax
Deferred income tax at 31 December relates to the following:
| |
Consolidated balance sheet |
Consolidated income statement |
| |
2006
£m |
2005
£m |
2006
£m |
2005
£m |
| Deferred tax liabilities |
|
|
|
|
| Accelerated capital allowances |
(3.5) |
(3.0) |
0.9 |
3.4 |
| Fair value adjustments on acquisition |
(10.6) |
(10.0) |
(1.9) |
(1.2) |
| |
(14.1) |
(13.0) |
|
|
| Deferred tax assets |
|
|
|
|
| Share based payments |
20.7 |
10.9 |
(2.6) |
(2.1) |
| Pension schemes |
11.8 |
20.4 |
4.8 |
5.2 |
| Provisions |
3.4 |
6.3 |
3.3 |
(2.3) |
| Losses available for offset against future taxable income |
0.3 |
0.5 |
0.5 |
0.7 |
| |
36.2 |
38.1 |
|
|
| Net deferred tax asset |
22.1 |
25.1 |
|
|
| Deferred income tax expense |
|
|
5.0 |
3.7 |
The Group has tax losses which arose in the UK of £5.0m (2005: £8.5m) that are available for offset against future taxable profits of the companies in which the losses arose. Deferred tax assets have not been recognised in respect of £4.0m (2005: £6.9m) of these losses, as their recoverability is uncertain.
There are no income tax consequences attaching to the payment of dividends by The Capita Group Plc to its shareholders.