For the year ended 31 December 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
6 Taxation (a) Tax expense
Analysis of charge in year
2015 £m 2014 £m
Current tax (charge)/credit Current year charge Utilisation of previously unrecognised tax losses and other assets Net movement on provisions for uncertain tax positions Adjustments in respect of prior years Deferred tax (charge)/credit Origination and reversal of temporary differences Tax on change in value of derivative financial instruments Other changes in unrecognised deferred tax assets Adjustments in respect of prior years Total tax charge for the year Analysed as:
(121) 38 (23) – (106) 30 31 1 1 63 (43)
(86) 1 9 (4) (80) 36 (51) 44 4 33 (47)
Tax in respect of management profit Current tax Deferred tax Tax in respect of items excluded from management profit Current tax Deferred tax Total for tax charge for the year
(107) (26) (133) 1 89 90 (43)
(77) (44) (121) (3) 77 74 (47)
Book tax rate
In 2015 the Group used £38 million of unrecognised tax losses against taxable profits reducing the current tax charge. The uncertainties preventing recognition of these losses will not be resolved until 2017 and a corresponding provision was created against their use. The net movement on provisions was reduced to £23 million by the resolution of a long standing dispute through a bilateral negotiation between tax authorities.
Management tax rate
The tax charge arising on management profits of subsidiaries of £544 million (2014: £539 million) was £133 million (2014: £121 million charge) giving an effective tax rate of 24% (2014: 22%).
Significant judgements and estimates
The Group operates in many jurisdictions and is subject to tax audits which are often complex and can take several years to conclude. Therefore, the accrual for current tax includes provisions for uncertain tax positions which require estimates for each matter and the exercise of judgement in respect of the interpretation of tax laws and the likelihood of challenge to historic tax positions. Where appropriate, estimates of interest and penalties are included in these provisions. As amounts provided for in any year could differ from eventual tax liabilities, subsequent adjustments which have a material impact on the Group’s tax rate and/or cash tax payments may arise. Tax payments comprise payments on account and payments on the final resolution of open items and, as a result, there can be substantial differences between the charge in the income statement and cash tax payments. Where companies utilise brought forward tax losses such that little or no tax is paid, this also results in differences between the tax charge and cash tax payments. With regard to deferred tax, judgement is required for the recognition of deferred tax assets, which is based on expectations of future financial performance in particular legal entities or tax groups.
GKN plc Annual Report and Accounts 2015