The tax charge for the year comprises current tax and deferred tax.
Current tax is the amount of corporation tax payable in respect of the taxable profit for the year. Taxable profit differs from profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Timing differences are differences between taxable profits and total comprehensive income as stated in the financial statements, arising from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax assets are recognised only to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.
Deferred tax is measured using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and that are expected to apply to the reversal of the timing difference. Deferred tax balances are not discounted. Deferred tax liabilities are presented within provisions for liabilities and deferred tax assets within debtors.
Current and deferred tax are recognised in the profit and loss account, except where they relate to items recognised in other comprehensive income or directly in equity, in which case they are recognised in other comprehensive income or equity respectively.