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Note 11: Tax

a  Tax on profit on ordinary activities

Tax charge/(credit) in the income statement

  Group
£ million 2010 2009
Current income tax
UK corporation tax (4) (37)
Relief for foreign tax paid (3)
Advance corporation tax reversal   26
UK tax (4) (14)
Foreign tax 2
Adjustments in respect of prior years – UK corporation tax 2 (18)
Adjustments in respect of prior years – advance corporation tax   21
Total current income tax credit (2) (9)
Deferred tax
Property, plant and equipment related temporary differences (72) (65)
Effect of abolition of industrial buildings allowances 79
Pension related temporary differences 77 41
Unremitted earnings of associate companies (26) 11
Advance corporation tax (26)
Tax losses carried forward (66) (56)
Exchange related temporary differences (4) (3)
Share option deductions written back 1
Other temporary differences (2) (3)
Adjustments in respect of prior years – deferred tax (11) 8
Adjustments in respect of prior years – advance corporation tax   (21)
Total deferred tax credit (104) (34)
Total tax credit in the income statement (106) (43)

Tax charge/(credit) directly to equity

  Group
£ million 2010 2009
Deferred tax relating to items charged/(credited) to statement of other comprehensive income
Foreign exchange 34 (133)
Net gains/(losses) on cash flow hedges 193 (251)
Share of other movements in reserves of associates 3 (6)
Deferred tax relating to items charged to statement of changes in equity
Share options in issue (4)  
Total tax charge/(credit) reported directly in statement of other comprehensive income and changes in equity 226 (390)

b  Reconciliation of the total tax credit

The tax credit for the year on the loss is less than the notional tax credit on those losses calculated at the UK corporation tax rate of 28 per cent (2009: 28 per cent). The differences are explained below:

  Group
£ million 2010 2009
Accounting loss before tax (531) (401)
Accounting loss multiplied by standard rate of corporation tax in the UK of 28 per cent (2009: 28 per cent) (149) (112)
Effects of:
Tax on associate and subsidiary companies
Tax on associates’ profits and dividends
Effect of change in foreign profits legislation (13) (2)
Tax on subsidiary unremitted earnings (8)
Euro preferred securities
Euro preferred securities accounted for as non-controlling interests (5) (5)
Tax on revaluation of intra group foreign currency loans 1 (4)
Changes in accounting standards/tax legislation
Effect of abolition of industrial buildings allowances 79
Deferred tax assets not recognised
Current year losses not recognised 9 2
Other
Non-deductible expenses 10 7
Effect of pension fund accounting 45 (5)
Foreign exchange and unwind of discount on competition investigation provisions 4 9
Share option deductions written back 1
Adjustments in respect of prior years (9) (10)
Minor items shown separately in the prior year for which there is no current year equivalent   (3)
Tax credit in the income statement (106) (43)

c  Deferred tax

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

  Group   Company
£ million 2010 2009   2010 2009
Fixed asset related temporary differences 1,043 1,121 957 1,034
Pensions related temporary differences 62 (16) 64 (13)
Exchange differences on funding liabilities (38) (69) (38) (69)
Advance corporation tax (94) (94) (94) (94)
Tax losses carried forward  (181) (109) (181) (109)
Subsidiary and associate unremitted earnings 1 27 1 17
Fair value profits/(losses) recognised on cash flow hedges 19 (174) 19 (174)
Share options related temporary differences (5) (1) (5) (1)
Deferred revenue in relation to loyalty reward programmes (30) (35)
Other temporary differences (3) 2   (3) 1
At 31 March 774 652   720 592

Movement in provision

  Group   Company
£ million 2010 2009   2010 2009
Balance at 1 April 652 1,075 592 1,017
Deferred tax credit relating to income statement (104) (34) (95) (41)
Deferred tax charge/(credit) taken to statement of other comprehensive income 230 (390) 227 (384)
Deferred tax credit taken to statement of changes in equity (4) (4)
Revaluation of foreign currency balances and other movements   1      
At 31 March 774 652   720 592

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 2010 was as follows:

  Group
£ million 2010 2009
UK Air Passenger Duty 323 319
Other ticket taxes 167 155
Payroll related taxes 146 158
Total 636 632

The UK Government has implemented substantial increases in the rates of Air Passenger Duty from 1 November 2009 and further increases are proposed to take effect from 1 November 2010. However, the parties to the new coalition Government have agreed that Air Passenger Duty should be replaced by a per plane duty.

e  Factors that may affect future tax charges

The Group has UK capital losses carried forward of £189 million (2009: £141 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 (2009: £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 an unrecognised deferred tax asset of £79 million (2009: £79 million) arising from temporary differences in respect of future capital losses if properties are realised at their residual value.

The Group has overseas tax losses of £44 million (2009: £16 million) 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.

At 31 March 2009 the Group had temporary differences of £26 million relating to the unremitted earnings of overseas subsidiaries on which no deferred tax liability was recognised because the Group is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. As a result of a change to UK tax legislation which largely exempts UK and overseas dividends received on or after 1 July 2009 from UK tax, and as there are no withholding taxes arising on the payment of such dividends, the temporary difference is now £nil.

As a result of the enactment of the dividend exemption in the Finance Act 2009, deferred tax of £10 million provided at 31 March 2009 on the unremitted earnings of subsidiaries and associates has been released. A credit of £13 million arising from this release of deferred tax has been taken to the income statement for the year ended 31 March 2010.

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