Responsibility

Responsible Tax

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Paying our fair share of tax 

We are committed to paying our fair share of tax to build a successful and sustainable business.

Our approach to responsible tax management is to pay the correct amount of tax in the right jurisdictions and on time.  The tax we pay reflects the underlying commercial transactions across our business and fulfills our legal obligations.

Deciding these matters can involve interpretation of rules and forming judgements, so we seek to be open and transparent about our approach, our decision-making processes and the outcomes achieved. This is in keeping with our Business Principles, which provide the foundation for how we operate.

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If you have any questions about Responsible Tax you can send your queries to GroupTax@centrica.com.

How we apply our approach

Our approach to responsible taxation applies both to the taxes levied on the business directly and to amounts which we are required to collect from those we do business with, such as customers, employees and commercial partners. 

Responsible taxation also extends to our policy on the use of subsidiaries in jurisdictions (‘tax havens’) which levy low or no taxation on companies.  We will only normally incorporate a subsidiary in a tax haven where there is a business requirement to do so. 

All of our subsidiaries are liable for corporation tax in the country in which they were incorporated, except two companies which we acquired a number of years ago.  The subsidiaries concerned are incorporated in Jersey but pay tax on all of their taxable profits in the UK.

Our tax strategy

We recognise and understand the increasing need of our many stakeholders for more transparency around the tax affairs of large companies such as Centrica. 

Centrica has had a written tax strategy for many years and has previously included components of the strategy in its Annual Report each year. Our Tax Strategy has been shared with HMRC, as we believe it is important to the Group that HMRC understand our approach to tax.

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Tax disclosure

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.
Changes to the way we report on tax

In response to the Financial Reporting Council’s report on its review of tax disclosures of listed companies, we have amended the 2016 Annual Report and Accounts to include the following:

  • Discussion of the effective tax rate, including commentary on variances to prior periods, key influences and the expected future rate;
  • Information on material tax matters that are likely to be important to users of financial statements, including the impact of BEPS (Base Erosion and Profit Shifting) proposals on the Group’s tax position;

Improved disclosure around the movement on provisions held to cover issues where the tax outcomes are uncertain, for example transfer pricing. 

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