As well as explaining our approach to tax, the Annual Report and Accounts (‘ARA’), includes:
- An explanation of the difference between the tax charge per the accounts and the cash tax we pay each year to the Governments of countries in which Centrica operates.
- Calculation of the adjusted effective tax rate in the UK and outside the UK. The effective tax rate is calculated as the tax charge in the accounts divided by the profit before tax expressed as a percentage.
- Separate disclosure of corporate income tax liabilities (disclosed as current tax assets and liabilities in the Balance Sheet) and the amount of corporate income tax paid in the year.
An explanation of the Group’s deferred tax balances, including details of the main components of the asset or liability and the deferred tax charge for the year.
- Deferred tax is an accounting measure which seeks to reconcile differences between the accounting and tax treatment of the Group’s assets and liabilities. Tax will be payable or relieved when the difference between the accounting and tax treatment unwinds.
A reconciliation of the Group’s effective tax rate to the standard rate of UK corporation tax.
For international groups such as Centrica, the effective tax rate is generally different to the UK Corporation tax rate (for the year ended 31 December 2016 the UK Corporation tax rate is 20%).
Centrica’s effective tax rate is different to the UK Corporation tax rate because:
- The Group operates in countries whose profits are subject to corporation tax rates ranging from 12.5% to 78%;
- UK oil and gas profits and losses are subject to corporation tax of 30% plus an additional tax (supplementary charge) of 10% (a total of 40%).
- Some expenses, such as business entertainment, are not tax deductible.
- Reduced rates of UK Supplementary charge (from 20% to 10%) and UK petroleum revenue tax (from 35% to 0%) applied in the year and the reduction in the UK mainstream corporation tax rate (from 18% to 17%) with effect from 1 April 2020 led to a restatement of the Group’s UK deferred tax assets and liabilities.