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Note 12: Tax

a  Tax on (loss)/profit on ordinary activities

Tax (credit)/charge in the income statement

  Group
£ million 2009 2008
Restated
Current income tax    
UK corporation tax (37) 72
Relief for foreign tax paid (3) (2)
Advance corporation tax reversal 26 (47)
UK tax (14) 23
Foreign tax 2 1
Adjustments in respect of prior years – UK corporation tax (18) (8)
Adjustments in respect of prior years – advance corporation tax 21  
Total current income tax (credit)/charge (9) 16
Deferred tax    
Effect of the change in the rate of UK corporation tax on opening balances   (70)
Property, plant and equipment related temporary differences (65) (57)
Effect of abolition of industrial buildings allowances 79  
Pensions 41 237
Unremitted earnings of associate companies 11 5
Advance corporation tax (26) 47
Tax losses carried forward (56)  
Exchange differences (3)  
Share option deductions written back 1 5
Other temporary differences (3) (1)
Adjustments in respect of prior years – deferred tax 8 12
Adjustments in respect of prior years – advance corporation tax (21)  
Total deferred tax (credit)/charge (34) 178
Total tax (credit)/charge in the income statement (43) 194

Tax (credit)/charge directly to equity

  Group
£ million 2009 2008
Deferred tax    
Deferred tax on net movement on revaluation of cash flow hedges (251) 67
Deferred tax on foreign exchange in reserves (133) (21)
Deferred tax on share options in issue   7
Corporation tax rate change for items credited directly to reserves   (6)
Deferred tax on Iberia unremitted earnings (6)  
Tax (credit)/charge taken directly to equity (390) 47

b  Reconciliation of the total tax (credit)/charge

The tax (credit)/charge for the year on the (loss)/profit from continuing operations is less than the notional tax credit on those (losses)/profits calculated at the UK corporation tax rate of 28 per cent (2008: 30 per cent). The differences are explained below:

  Group
£ million 2009 2008
Restated
Accounting (loss)/profit before tax (401) 922
Accounting (loss)/profit multiplied by standard rate of corporation tax in the UK of 28 per cent (2008: 30 per cent) (112) 277
Effects of:    
Non-deductible expenses 7 7
Foreign exchange and unwind of discount on competition investigation provisions 9 2
Share option deductions written back 1 5
Deductions available on aircraft refinancing surpluses (4) (5)
Disposals and write-down of investments 3 (1)
Tax on associates’ profits and dividends   (5)
Tax on subsidiary unremitted earnings (2)  
Overseas tax in relation to branches (1)  
Euro preferred securities accounted for as minority interest (5) (4)
Tax on revaluation of intra-group foreign currency loans (4) (5)
Effect of pension fund accounting under IFRIC 14 (5) (11)
Effect of abolition of industrial buildings allowances 79  
Unrecognised deferred tax asset on pension deficit 2  
Other permanent differences   (2)
Current year losses not recognised 2  
Adjustments in respect of prior years (10) 4
Rate benefit of trading loss carry back (3)  
Effect of UK corporation tax rate reduction from 30 per cent to 28 per cent   (68)
Tax (credit)/charge in the income statement (note 12a) (43) 194

c  Deferred tax

The deferred tax included in the balance sheet is as follows:

  Group   Company
£ million 2009 2008
Restated
  2009 2008
Restated
Fixed asset related temporary differences 1,121 1,105   1,034 1,019
Pensions related temporary differences (16) (56)   (13) (54)
Exchange differences on funding liabilities (69) 68   (69) 67
Advance corporation tax (94) (47)   (94) (47)
Tax losses carried forward arising from the implementation of IFRIC 13 (52)     (52)  
Tax losses carried forward arising from loss per income statement (57) (1)   (57)  
Subsidiary and associate unremitted earnings 27 18   17 4
Fair value (losses)/profits recognised on cash flow hedges (174) 78   (174) 78
Share options related temporary differences (1) (3)   (1) (3)
Deferred revenue in relation to loyalty reward programmes (35) (93)     (52)
Other temporary differences 2 6   1 5
At March 31 652 1,075   592 1,017

Movement in provision

  Group   Company
£ million 2009 2008
Restated
  2009 2008
Restated
Balance at April 1 1,154 930   1,069 855
Restatement of balances arising from implementation of IFRIC 13 (79) (86)   (52) (58)
Restated balance at April 1 1,075 844   1,017 797
Deferred tax (credit)/charge relating to profit (note 12a) (34) 178   (41) 173
Deferred tax (credit)/charge taken directly in reserves (note 12a) (390) 47   (384) 47
Deferred tax arising on acquisition of equity in Iberia   3      
Revaluation of foreign currency balances and other movements 1 3      
At March 31 652 1,075   592 1,017

d  Other taxes

The Group also contributed tax revenues through payment of transaction and payroll related taxes. A breakdown of these other taxes payable during 2009 was as follows:

  Group
£ million 2009 2008
UK Air Passenger Duty 319 365
Other ticket taxes 155 144
Payroll related taxes 158 150
Total 632 659

The UK Government has proposed substantial increases in the rates of Air Passenger Duty from November 1, 2009, and further increases are proposed to take effect from November 1, 2010.

e  Factors that may affect future tax charges

The Group has UK capital losses carried forward of £141 million (2008: £158 million). These losses are available for offset against future UK chargeable gains. No deferred tax asset has been recognised in respect of these capital losses as no further utilisation is currently anticipated. The Group has deferred taxation arising on chargeable gains by roll-over and hold-over relief claims that have reduced the tax basis of fixed assets by £69 million (2008: £69 million). No deferred tax liability has been recognised in respect of the crystallisation of these chargeable gains as they could be offset against the UK capital losses carried forward. The Group also has unrecognised temporary differences representing future capital losses of £281 million (2008: £nil) if properties which previously qualified for industrial buildings allowances were realised at their residual value.

The Group has overseas net operating losses of £8 million (2008: £nil) that are carried forward for offset against suitable future taxable profits. No deferred tax asset has been recognised in respect of these losses as their utilisation is not currently anticipated.

The Group has an unrecognised temporary difference of £8 million (2008: £nil) arising from contributions to pension funds that are not expected to create a reduction in the Group’s future tax liabilities.

Deferred tax has been provided on the Group’s share of the unremitted earnings of associate companies and on the unremitted earnings of subsidiary companies that are expected to be paid as dividends to the parent company within the foreseeable future. Were the retained earnings of other overseas subsidiary companies to be remitted to the parent company as a dividend, the temporary differences upon which the Group has not provided for deferred tax are £26 million (2008: £19 million).

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