The tax charge for the period comprises current and deferred tax. Tax is recognised in the Consolidated Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case the tax is also recognised in other comprehensive income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the period, calculated using tax rates enacted by the balance sheet date. Management periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognised using the balance sheet liability method on temporary differences arising between the tax base of assets and liabilities and their carrying amount in the financial statements. Deferred tax is calculated at the tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised. Recognition, therefore, involves judgement regarding the prudent forecasting of future taxable profits of the business and in applying an appropriate risk adjustment factor. The final outcome of some of these items may give rise to material profit and loss and/or cash flow variances. At the balance sheet date, management have forecast that the Group would generate future taxable profits against which existing tax losses could be relieved. The carrying amount of deferred tax assets is reviewed at each balance sheet date.
Deferred tax assets and liabilities are offset against each other when there is a legally enforceable right to offset current taxation assets against current taxation liabilities and it is the intention to settle these on a net basis.
Research and Development Expenditure Credit
The Group takes advantage of the incentives offered under the UK's Research and Development Expenditure Credit (RDEC) regime to claim a credit for the Group's significant expenditure on qualifying research and development. As enacted in the Finance Act 2015, the credit due to the Group is equal to 11% of the Group's qualifying expenditure. The Group continues to utilise the additional benefits from the scheme in light of the Group's commitment to its innovative technology and software.
The Group claimed a credit of £1.3 million for the 52 weeks ended 29 November 2015.
Future Changes to Tax Legislation
The Group undertakes regular reviews in order to ensure its ongoing compliance with current and future proposed changes to UK tax legislation. The Group has undertaken a review of the Group's activities in light of the OECD's Base Erosion and Profit Shifting (BEPS) publications and does not foresee any significant impact on the Group's effective tax rate resulting from the proposed changes in the short to medium term.
Taxation — Income Statement
|Recognised in the Consolidated Income Statement|
|UK corporation tax on profits of the period||—||0.1|
|Overseas corporation tax on profits of the period||0.1||(0.1)|
|Adjustments in respect of prior periods||—||0.1|
|Total Current Tax||0.1||0.1|
|Origination and reversal of temporary differences||—||—|
|Total Deferred Tax||—||—|
|Income Tax Expense||0.1||0.1|
The tax on the Group's profit before tax differs from the theoretical amount that would arise using effective tax rate applicable to profits of the Group as follows:
|Profit before tax||12.1||11.9|
|Effective tax charge at the UK tax rate of 20% (2015: 20.3%)||2.4||2.4|
|Utilisation of brought forward losses||(0.6)||—|
|Difference in overseas tax rates||—||0.6|
|Temporary differences on which no deferred tax recognised||(3.4)||(4.8)|
|Prior year adjustments||—||0.1|
|Income Tax charge for the Period||0.1||0.1|
As enacted in Finance Act 2014, the standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. The effective rate for the period is 20%.
Taxation — Balance Sheet
Movement in the deferred tax asset is as follows:
|As at 30 November 2014||9.4|
|Effect of change in UK corporation tax rate||(0.9)|
|Recognised through the Consolidated Income Statement||1.5|
|As at 29 November 2015||10.0|
|Recognised through the Consolidated Income Statement||4.2|
|As at 27 November 2016||14.2|
As enacted in the Finance Act (No.2) 2016, the main rate of corporation tax will change from 20% to 19% from 1 April 2017, to 18% from 1 April 2018 and to 17% from 1 April 2020. Deferred tax has been provided at the rate at which the deferred tax asset is expected to be utilised.
Movement in the unrecognised deferred tax asset is set out below:
|As at 30 November 2014||47.6||15.0||0.5||63.1|
|Effect of change in UK corporation tax rate||(4.8)||(1.5)||—||(6.3)|
|Potential movement in the period unrecognised through:|
|— Consolidated Income Statement||(1.1)||(8.0)||(0.5)||(9.6)|
|As at 29 November 2015||41.7||5.5||—||47.2|
|Adjustment through submitted corporation tax returns||(2.6)||16.1||13.5|
|Potential movement in the period unrecognised through:|
|— Consolidated Income Statement||(4.9)||(10.0)||—||(14.9)|
|As at 27 November 2016||34.2||11.6||—||45.8|
As at 27 November 2016 the Group had approximately £268.6 million of unutilised tax losses (2015: approximately £287.8 million) available for offset against future profits. A deferred tax asset of £14.2 million (2015: £10.0 million) has been recognised in respect of £78.9 million (2015: £55.6 million) of such losses, the recovery of which is supported by the expected level of future profits of the Group. The recognition of the deferred tax asset is based on forecast operating results calculated in approved business plans and a review of tax planning opportunities. Management have concluded that there is sufficient evidence for the recognition of the deferred tax asset of £14.2 million (2015: £10.0 million).
No deferred tax asset has been recognised in respect of the remaining losses on the basis that their future economic benefit is uncertain given the unpredictability of future profit streams. All tax losses, both recognised and unrecognised, can be carried forward indefinitely.
Movement in the recognised deferred tax liability is set out below:
|As at 30 November 2014||(2.0)|
|Effect of change in UK corporation tax rate||0.2|
|Recognised through the Consolidated Income Statement||(0.9)|
|As at 29 November 2015||(2.7)|
|Recognised through the Consolidated Income Statement||(4.2)|
|As at 27 November 2016||(6.9)|
For the year ended 27 November 2016 the Group has recognised a deferred tax liability of £6.9 million (2015: £2.7 million). Of this amount, £6.9 million (2015: £2.3 million) is in respect of intangible assets that management assessed as qualifying for research and development corporation tax relief. The timing of the tax deductions in respect of expenditure incurred on these assets differs to the amortisation profile of the assets giving rise to the deferred tax liability. This liability will be unwound over the useful lives of the assets.