Accounting policies
The tax charge for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is also recognised in other comprehensive income or directly in equity respectively.
Current taxation
Current tax is the expected tax payable on the taxable income for the period, calculated using tax rates enacted or substantively enacted by the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred taxation
Deferred tax is recognised using the balance sheet liability method on temporary differences arising between the tax base of assets and liabilities and their carrying amount in the financial statements. Deferred tax is calculated at the tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Recognition, therefore, involves judgement regarding the prudent forecasting of future taxable profits of the business and in applying an appropriate risk adjustment factor. The final outcome of some of these items may give rise to material profit and loss and/or cash flow variances. At the balance sheet date management has forecast that the Group would generate future taxable profits against which existing tax losses could be relieved. The carrying amount of deferred tax assets is reviewed at each balance sheet date.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to offset current taxation assets against current taxation liabilities and it is the intention to settle these on a net basis.
Taxation – Income statement
| 52 weeks
ended
30 November
2014
£m | 52 weeks
ended
1 December
2013
£m |
|---|
| Recognised in the Income statement | | |
| Current tax: | | |
| UK corporation tax on profits of the period | — | — |
| Overseas corporation tax on profits of the period | 0.1 | — |
| Adjustments in respect of prior periods | (0.3) | — |
| Total current tax | (0.2) | — |
| Deferred tax: | | |
| Adjustment in respect of prior periods | 0.3 | — |
| Origination and reversal of temporary differences | (0.2) | — |
| Total deferred tax | 0.1 | — |
| Income tax expense/(credit) | (0.1) | — |
The tax on the Group's profit/(loss) before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the Group as follows:
| | 52 weeks
ended
30 November
2014
£m | 52 weeks
ended
1 December
2013
£m |
|---|
| Profit/(loss) before tax | 7.2 | (12.5) |
| Effective tax charge/(credit) at the UK tax rate of 21.7% (2013: 23.3%) | 1.5 | (2.9) |
| Effect of: | | |
| Change in UK corporation tax rate | — | 1.3 |
| Utilisation of brought forward losses | (0.2) | — |
| Permanent differences | 1.8 | 1.2 |
| Difference in overseas tax rates | — | 0.6 |
| Release of deferred tax on capitalised R&D | (0.4) | — |
| Tax losses for which no deferred tax asset recognised | 0.3 | — |
| Temporary differences on which no deferred tax recognised | (3.1) | (0.2) |
| Income tax charge/(credit) for the period | (0.1) | — |
As enacted in Finance Act 2013, the standard rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014. Accordingly, the effective rate for the period is 21.7%.
Taxation — Balance sheet
Movement in the deferred tax asset is as follows:
| | Tax losses
carry-forwards
£m |
|---|
| As at 2 December 2012 | 7.9 |
| Effect of change in UK corporation tax rate | (1.1) |
| Tax losses recognised through the Income statement | 1.1 |
| As at 1 December 2013 | 7.9 |
| Effect of change in UK corporation tax rate | — |
| Tax losses recognised through the Income statement | 1.5 |
| As at 30 November 2014 | 9.4 |
As enacted in Finance Act 2013, the standard rate of corporation tax in the UK changed to 21% from 1 April 2014 and will change to 20% from 1 April 2015. Deferred tax has been provided at the rates enacted at the balance sheet date.
Movement in the unrecognised deferred tax asset is analysed below:
| | Tax losses
carry-forwards
£m | Accelerated
capital
allowances
£m | Derivative
financial
instruments
£m | Other short-
term timing
differences
£m | Total
£m |
|---|
| As at 2 December 2012 | 56.7 | 17.1 | 0.1 | 0.1 | 74.0 |
| Adjustment in respect of prior periods | — | 0.7 | — | — | 0.7 |
| Effect of change in UK corporation tax rate | (7.4) | (2.3) | — | — | (9.7) |
| Potential movement in the period unrecognised through: | | | | | |
| — Income statement | (1.0) | 1.5 | — | (0.1) | 0.4 |
| — Equity | — | — | (0.1) | — | (0.1) |
| As at 1 December 2013 | 48.3 | 17.0 | — | — | 65.3 |
| Adjustment in respect of prior periods | — | — | — | — | — |
| Effect of change in UK corporation tax rate | — | — | — | — | — |
| Potential movement in the period unrecognised through: | | | | | |
| — Income statement | (0.7) | (2.0) | — | 0.5 | (2.2) |
| — Equity | — | — | — | — | — |
| As at 30 November 2014 | 47.6 | 15.0 | — | 0.5 | 63.1 |
As at 30 November 2014 the Group had approximately £285.3 million of unutilised tax losses (2013: approximately £279.5 million) available for offset against future profits. A deferred tax asset of £9.4 million (2013: £7.9 million) has been recognised in respect of £47.0 million (2013: £39.6 million) of such losses, the recovery of which is supported by the expected level of future profits of the Group. The recognition of the deferred tax asset is based on forecasted operating results calculated in approved business plans and a review of tax planning opportunities. Management have concluded that there is sufficient evidence for the recognition of the deferred tax asset of £9.4 million.
No deferred tax asset has been recognised in respect of the remaining losses on the basis that their future economic benefit is uncertain given the unpredictability of future profit streams. All tax losses, both recognised and unrecognised, can be carried forward indefinitely.
Movement in the recognised deferred tax liability is analysed below:
| | £m |
|---|
| As at 2 December 2012 | (0.4) |
| Recognised through the Income statement | — |
| As at 1 December 2013 | (0.4) |
| Recognised through the Income statement | (1.6) |
| As at 30 November 2014 | (2.0) |
For the year ended 30 November 2014 the Group has recognised a deferred tax liability of £2.0 million. Of this amount, £1.7 million is in respect of intangible assets that management assessed as qualifying for research and development corporation tax relief. The timing of the tax deductions in respect of expenditure incurred on these assets differs to the amortisation profile of the assets giving rise to the deferred tax liability. This liability will be unwound over the useful lives of the assets.
In a prior period, the Group recognised a deferred tax liability of £0.4 million in respect of intangible assets that management assessed as qualifying for research and development corporation tax relief. After corporation tax relief, the timing of tax deductions in respect of expenditure incurred on these assets differs to the amortisation profile of the assets giving rise to the deferred tax liability. This liability will be unwound over the useful lives of the assets.