BAE-annual-report-2014

Financial statements
6. TAXATION EXPENSE continued
Reconciliation of taxation expense
The following table reconciles the theoretical income tax expense, using the UK corporation tax rate, to the reported tax expense. The
reconciling items represent, besides the impact of tax rate differentials and changes, non-taxable benefits or non-deductible expenses
arising from differences between the local tax base and the reported financial statements.
Profit before taxation 882 422
UK corporation tax rate 21.5% 23.25%
Expected income tax expense (190) (98)
2014
£m
2013
£m
Effect of tax rates in foreign jurisdictions, including US state taxes (18) (24)
Expenses not tax effected (12) (9)
Income not subject to tax 17 17
Research and development tax credits and patent box benefits 29 39
Non-deductible goodwill impairment (35) (201)
Chargeable gains and non-taxable gains/non-deductible losses on disposal of businesses – (1)
Utilisation of previously unrecognised tax losses 3 5
Recoverable deferred tax asset previously unrecognised – 5
Adjustments in respect of prior years 1 61 18
Adjustments in respect of equity accounted investments 18 26
Tax rate adjustment 2 – (8)
Other (3) (15)
Taxation expense (130) (246)
Calculation of the underlying effective tax rate
Profit before taxation 882 422
Add back/(deduct):
Taxation expense of equity accounted investments (note 1) 18 41
Non-recurring items (note 1) – (6)
Goodwill impairment (note 9) 161 865
1,061 1,322
Taxation expense (130) (246)
Taxation expense of equity accounted investments (note 1) (18) (41)
Taxation expense (including equity accounted investments) (148) (287)
Exclude: Re-assessment of existing tax provisions 1 (51) –
Underlying taxation expense (including equity accounted investments) (199) (287)
Underlying effective tax rate 19% 22%
1. 2014 includes a £51m credit in respect of the re-assessment of existing tax provisions. The complexity and duration of some of the Group’s activities can result in
delays in agreeing and closing certain tax positions. The Group continually updates its estimates for those positions whenever new information becomes available.
The £51m credit relates to one such position in respect of an overseas issue where information received in the year enabled the estimate to be updated.
2. The UK current tax rate was reduced from 23% to 21% with effect from 1 April 2014, and will be reduced to 20% with effect from 1 April 2015. In line with this
change, the rate applying to UK deferred tax assets and liabilities was reduced from 23% to 20%, creating a rate adjustment in 2013, which is partly reflected
in the Consolidated Income Statement and partly in the Consolidated Statement of Comprehensive Income.
2014
£m
2013
£m
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
BAE Systems
Annual Report 2014
115