Notes to the consolidated financial statements
14 Taxation
(a) Analysis of credit (charge) for the year
| 2008 |
2007 |
||
|---|---|---|---|
| UK corporation tax: |
|||
| Current tax on profit for the year |
(667) |
(763) |
|
| Adjustments in respect of prior years |
(19) |
30 |
|
(686) |
(733) |
||
| Double taxation relief |
91 |
60 |
|
(595) |
(673) |
||
| Foreign tax: |
|||
| Current tax on profit for the year |
(144) |
(98) |
|
| Adjustments in respect of prior years |
4 |
3 |
|
(140) |
(95) |
||
| Current tax charge |
(735) |
(768) |
|
| Deferred tax (note 38) |
773 |
89 |
|
| Tax credit (charge) |
38 |
(679) |
As a result of the Finance Act 2007, the statutory rate of corporation tax in the UK was reduced from 30 per cent to 28 per cent with effect from 1 April 2008. Therefore the charge for tax on the profit for the year is based on a UK corporation tax rate of 28.5 per cent (2007: 30 per cent).
The Group, as a proxy for policyholders in the UK, is required to record taxes on investment income, gains and losses each year. Accordingly, the tax attributable to UK life insurance policyholder earnings is included in income tax expense. The tax credit attributable to policyholders was £471 million (2007: £243 million credit), including a prior year tax charge of £4 million (2007: tax charge of £5 million).
In addition to the income statement current tax charge, a total of £674 million of current tax has been credited to equity (2007: a total of £131 million credit to equity); a debit of £1 million (2007: a credit of £3 million) in respect of share based payments, a credit of £584 million (2007: a credit of £103 million) in respect of foreign exchange differences and a net credit of £91 million (2007: a net credit of £25 million) in respect of the revaluation of available-for-sale financial assets.
(b) Factors affecting the tax credit (charge) for the year
A reconciliation of the charge that would result from applying the standard UK corporation tax rate to profit before tax to the tax credit (charge) for the year is given below:
|
2008 |
2007 |
|
|---|---|---|
|
Profit before tax |
807 |
4,000 |
|
Tax charge thereon at UK corporation tax rate of 28.5 per cent (2007: 30 per cent) |
(230) |
(1,200) |
|
Factors affecting charge: |
||
|
Goodwill impairment |
(28) |
– |
|
Disallowed and non-taxable items |
12 |
(2) |
|
Overseas tax rate differences |
(39) |
4 |
|
Gains exempted or covered by capital losses |
25 |
274 |
|
Policyholder interests |
337 |
173 |
|
UK corporation tax rate change |
– |
110 |
|
Other items |
(39) |
(38) |
|
Tax on profit on ordinary activities |
38 |
(679) |
|
Effective rate |
(4.7%) |
17.0% |