A5 Tax

A5 – Tax

This note analyses the tax charge for the year and explains the factors that affect it.

(a) Tax charged/(credited) to the income statement

(i) The total tax charge/(credit) comprises:

	2009 £m	2008 £m
Current tax
For this year	617	527
Prior year adjustments	(164)	(284)
Total current tax	453	243
Deferred tax
Origination and reversal of temporary differences	231	(1,814)
Changes in tax rates or tax laws	2	(7)
Write-down of deferred tax assets	21	95
Total deferred tax	254	(1,726)
Total tax charged/(credited) to income statement	707	(1,483)

(ii) The Group, as a proxy for policyholders in the UK, Ireland, Singapore and Australia (prior to disposal), is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish, Singapore and Australian life insurance policyholder returns is included in the tax charge. The tax charge attributable to policyholders’ returns included in the charge above is £217 million (2008: £1,068 million credit).

(iii) The tax charge/(credit) can be analysed as follows:

	2009 £m	2008 £m
UK tax	225	(1,482)
Overseas tax	482	(1)
	707	(1,483)

(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce current tax expense and deferred tax expense by £59 million and £10 million respectively (2008: £139 million and £19 million respectively).

(v) Deferred tax charged/(credited) to the income statement represents movements on the following items:

	2009 £m	2008 £m
Long-term business technical provisions and other insurance items	(876)	591
Deferred acquisition costs	261	224
Unrealised gains/(losses) on investments	963	(1,706)
Pensions and other post-retirement obligations	(72)	16
Unused losses and tax credits	(182)	(413)
Subsidiaries, associates and joint ventures	12	(199)
Intangibles and additional value of in-force long-term business	(21)	30
Provisions and other temporary differences	169	(269)
Total deferred tax charged/(credited) to income statement	254	(1,726)

(b) Tax charged/(credited) to other comprehensive income

(i) The total tax charge/(credit) comprises:

	2009 £m	2008 £m
Current tax
In respect of fair value (losses)/gains on owner-occupied properties	—	(1)
Deferred tax
In respect of pensions and other post-retirement obligations	(45)	(15)
In respect of unrealised gains/( losses) on investments	241	(203)
	196	(218)
Total tax charged/(credited) to other comprehensive income	196	(219)

(ii) The tax charge attributable to policyholders’ returns included above is £nil (2008: £nil).

(c) Tax credited to equity

Tax credited directly to equity in the year amounted to £17 million (2008: £16 million), and is wholly in respect of coupon payments on a direct capital instrument.

(d) Tax reconciliation

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	2009 £m	2008 £m
Profit/(loss) before tax	2,022	(2,368)
Tax calculated at standard UK corporation tax rate of 28% (2008: 28.5%)	566	(675)
Different basis of tax – policyholders	82	(767)
Adjustment to tax charge in respect of prior years	(113)	(283)
Non-assessable income	(105)	(94)
Non-taxable profit on sale of subsidiaries and associates	(44)	(2)
Disallowable expenses	279	95
Different local basis of tax on overseas profits	50	(61)
Movement in deferred tax	(15)	292
Other	7	12
Total tax charged/(credited) to income statement	707	(1,483)