Annual Report 2016 - Page 67

Annual Report 2016 Notes to the Financial Statements 9 Taxation on Profit on Ordinary Activities Current tax    Current year corporation tax 5,927    Adjustment in respect of prior years (272)   Foreign tax 34 5,149 (304) 12 Total current tax charge 5,689 4,857 Deferred tax    Origination and reversal of other timing differences 867    Impact of changes in future tax rates (4,322)    Adjustment in respect of prior years 283 (260) — 59 Total deferred tax credit (3,172) (201) Total tax charge 2,517 4,656 The tax charge for the year comprises: 2016 2015 (as restated) £’000 £’000 Tax included in the consolidated statement of comprehensive income 2016 2015 (as restated) £’000 £’000 Deferred tax    Actuarial gain on pension scheme    Movement in hedging reserve    Effect of change in deferred tax rate 826 (362) (373) 267 (230) — Total tax charge 91 37 The tax assessed on the profit on ordinary activities for the year is lower than the standard rate of corporation tax in the UK of 20% (2015 - 21%). The differences are reconciled below: 2016 2015 (as restated) £’000 £’000 Profit on ordinary activities before tax 43,313 32,670 Profit on ordinary activities multiplied by standard UK corporation tax rate of 20% (2015: 21%) Expenses not deductible for tax purposes including goodwill (net) Deferred tax provided at lower rate Impact of changes in future tax rates Adjustments in respect of prior years Group relief received not paid for Difference in foreign tax rates 8,663 951 (88) (4,322) 11 (2,709) 11 6,861 933 11 — (245) (2,904) — Total tax charge 2,517 4,656 Reductions in the future UK corporation tax rates from 20% to 19% and then 18% were substantively enacted in July 2015 and will take effect in April 2017 and April 2020 respectively. A further reduction to 17% from April 2020 has been announced but has not been substantively enacted. Deferred tax has been recognised at 18% or 19% depending on the expected reversal period. Applying the proposed future tax rate of 17% to the deferred tax balance would have resulted in a reduction of the deferred tax liability and an additional profit and loss account reserve credit of £2,816,000. No deferred tax has been recognised on capital gains rolled over against the cost of acquisition of certain property and structures owned by South Staffordshire Water PLC. The gains will only come into charge if the assets are sold and not replaced by suitable qualifying assets. As the properties are essential assets of the water supply business it is regarded as unlikely that the gains will come into charge. The potential unprovided deferred tax amounts to £1,879,000 (2015: £2,087,000). The tax impact of exceptional items reported in the year ended 31 March 2016 is an increase in the current tax charge of £918,000 and a reduction in the deferred tax credit of £645,000. 65