Section image

Cherries
oil on canvas
22 x 20 in
1981

Penny Machines
oil on canvas
23¾ x 29¾ in
1961

Stack of Books
oil on canvas
30 x 24 in
n.d.

Seven Suckers
oil on canvas
19 x 23 in
1970

Twin Jackpots
oil on canvas
30 x 46 in
1962

Ties
oil on canvas
20 x 26 in
1980

Cake Slices
oil on canvas
20 x 16 in
n.d.

Notes 11-15

For the year ended 31 December 2010

15. Deferred tax

The Group’s deferred tax assets and liabilities are measured at the end of each period in accordance with IAS 12. The recognition of deferred tax assets is determined by reference to the Group’s estimate of recoverability, using models where appropriate to forecast future taxable profits.

Deferred tax assets are recognised in relation to an element of the Group’s defined benefit pension provisions and share based payment schemes. Assets have only been recognised for territories where the Group considers that it is probable there would be sufficient taxable profits for the future deductions to be utilised.

Based on available evidence, both positive and negative, we determine whether it is probable that all or a portion of the deferred tax assets will be realised. The main factors that we consider include:

– the future earnings potential determined through the use of internal forecasts;
– the cumulative losses in recent years;
– the various jurisdictions in which the potential deferred tax assets arise;
– the history of losses carried forward and other tax assets expiring;
– the timing of future reversal of taxable temporary differences;
– the expiry period associated with the deferred tax assets; and
– the nature of the income that can be used to realise the deferred tax asset.

If it is probable that some portion of these assets will not be realised, then no asset is recognised in relation to that portion.

If market conditions improve and future results of operations exceed our current expectations, our existing recognised deferred tax assets may be adjusted, resulting in future tax benefits. Alternatively, if market conditions deteriorate further or future results of operations are less than expected, future assessments may result in a determination that some or all of the deferred tax assets are not realisable. As a result, all or a portion of the deferred tax assets may need to be reversed.

Certain deferred tax assets and liabilities have been offset as they relate to the same tax group. The following is the analysis of the deferred tax balances for financial reporting purposes:

  Gross
£m
Offset
£m
As
reported
£m
2010      
Deferred tax assets 137.6 (58.5) 79.1
Deferred tax liabilities (809.2) 58.5 (750.7)
  (671.6) (671.6)
       
2009      
Deferred tax assets 75.6 (8.1) 67.5
Deferred tax liabilities (817.7) 8.1 (809.6)
  (742.1) (742.1)

The following are the major gross deferred tax assets recognised by the Group and movements thereon in 2010 and 2009:

  Tax
losses
£m
Retirement
benefit
obligations
£m
Deferred
comp-
ensation
£m
US
stock
plans
£m
Other
short-term
temporary
differences
£m
Total
£m
1 January 2009 9.1 16.0 12.2 31.4 68.7
(Charge)/credit to income (1.3) (5.3) 17.9 11.3
Charge to equity (4.4) (4.4)
Exchange adjustments 0.4 0.8 0.4 (1.6)
31 December 2009 8.2 12.4 7.3 47.7 75.6
(Charge)/credit to income (1.9) 0.5 (1.8) 30.6 18.0 45.4
Credit to equity 0.2 19.0 0.2 19.4
Exchange adjustments 3.3 3.3
Transfer to current tax (6.1) (6.1)
31 December 2010 6.3 13.1 5.5 49.6 63.1 137.6

Other short-term temporary differences comprise a number of items, none of which is individually significant to the Group’s consolidated balance sheet. At 31 December 2010 the balance related to temporary differences in relation to accounting provisions, tax credits, fixed assets, and tax deductible goodwill.

The Group incurred losses in certain jurisdictions in the current year. Deferred tax assets of £10.5 million have been recognised in these jurisdictions.

In addition the Group has recognised the following gross deferred tax liabilities and movements thereon in 2010 and 2009:

  Brands
and other
intangibles
£m
Associate
earnings
£m
Goodwill
£m
Other
short-term
temporary
differences
£m
Total
£m
1 January 2009 811.2 21.1 81.9 6.0 920.2
New acquisitions 2.8 2.8
Prior year acquisitions1 1.6 (20.7) (1.4) (20.5)
(Credit)/charge to income (55.9) 0.1 18.6 (3.9) (41.1)
Charge to equity 9.8 9.8
Exchange adjustments (47.8) (1.0) (5.0) 0.3 (53.5)
31 December 2009 711.9 20.2 74.8 10.8 817.7
New acquisitions 9.4 9.4
(Credit)/charge to income (52.5) 0.3 14.9 (2.2) (39.5)
Exchange adjustments 19.3 0.7 2.7 22.7
Transfer to current tax (1.1) (1.1)
31 December 2010 688.1 21.2 92.4 7.5 809.2
Note
1
Adjustments made in the year ended 31 December 2009 in relation to deferred tax liabilities that had been provisionally estimated in the year ended 31 December 2008 for acquisitions completed in that year.

At the balance sheet date, the Group has gross tax losses and other temporary differences of £5,212.9 million (2009: £4,888.3 million) available for offset against future profits. Deferred tax assets have been recognised in respect of the tax benefit of £377.9 million (2009: £220.2 million) of such tax losses and other temporary differences. No deferred tax asset has been recognised in respect of the remaining £4,834.9 million (2009: £4,668.1 million) of losses and other temporary differences ???as the Group considers that there will not be enough taxable profits in the entities concerned such that any additional asset could be considered recoverable. Included in the total unrecognised temporary differences are losses of £30.9 million that will expire by 2019, £98.8 million that will expire by 2021, £235.6 million that will expire by 2023 and an additional £78.5 million that will expire by 2029. £3,118.7 million of losses may be carried forward indefinitely.

At the balance sheet date, the aggregate amount of the temporary differences in relation to the investment in subsidiaries for which deferred tax liabilities have not been recognised was £11,462.1 million (2009: £13,940.2 million). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and the Group considers that it is probable that such differences will not reverse in the foreseeable future.