Accounting policies

The tax charge for the period comprises current and deferred tax. Tax is recognised in the 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 taxation

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted by the balance sheet date. Management periodically evaluates 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 taxation

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 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 has forecast that the Group would generate future taxable profits against which existing tax losses could be relieved. As a result, the Group has recognised a deferred tax asset of £7.9 million with respect to available tax losses. 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.

2.2.1 Taxation — Income statement

53 weeks
ended
2 December
2012
£m
52 weeks
ended
27 November
2011
£m
Recognised in the income statement
Current tax:
UK corporation tax on profits of the period
Overseas corporation tax on profits of the period 0.1
Total current tax 0.1
Deferred tax:
Origination and reversal of temporary differences 1.7 (1.9)
Total deferred tax 1.7 (1.9)
Income tax charge/(credit) 1.8 (1.9)

The tax on the Group's loss before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to losses of the Group as follows:

53 weeks
ended
2 December
2012
£m
52 weeks
ended
27 November
2011
£m
Loss before tax (0.6) (2.4)
Effective tax credit at the UK tax rate of 24.67% (2011: 26.68%) (0.1) (0.6)
Effect of:
Change in UK corporation tax rate 0.7 0.5
Permanent differences 0.4
Difference in overseas tax rates 0.5
Tax losses for which no deferred tax asset recognised 0.8 (3.8)
Temporary differences on which no deferred tax recognised (0.5) 2.0
Income tax charge/(credit) for the period 1.8 (1.9)

As announced in the March 2012 Budget, the standard rate of corporation tax in the UK changed from 26% to 24% with effect from 1 April 2012 rather than the planned 25% which was enacted by the Finance Act 2011. Accordingly, the effective rate for the period is 24.67%.

The Budget also announced further reductions in the standard rate of corporation tax from 24% to 22% phased in over two years at 1% per annum from April 2012. The change from 24% to 23% with effect from 1 April 2013 was enacted in the Finance Act 2012 and so deferred tax has been provided at 23% as the asset is expected to be realised on or after 1 April 2013. A deferred tax charge of £0.7 million (2011: £0.5 million) has been recognised in the current period in respect of this.

Further changes have not been substantively enacted at the balance sheet date and are therefore not included in these financial statements. The proposed reduction to 22% from 1 April 2014 is not expected to be substantively enacted until a future Finance Bill is approved. The overall effect of the further changes from 23% to 22%, if applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by £0.4 million in 2014 (2011: £0.8 million).

2.2.2 Taxation — Balance sheet

Movement in the deferred tax asset is as follows:

Tax losses
carry-
forwards
£m
As at 28 November 2010 7.3
Effect of change in UK corporation tax rate (0.5)
Tax losses recognised through the income statement 2.8
As at 27 November 2011 9.6
Effect of change in UK corporation tax rate (0.7)
Tax losses recognised through the income statement (1.0)
As at 2 December 2012 7.9

Movement in the unrecognised deferred tax asset is analysed below:

Tax losses
carry-
forwards
£m
Accelerated
capital
allowances
£m
Share-based
payments
£m
Derivative
financial
instruments
£m
Other
short-term
timing
differences
£m
Total
£m
As at 28 November 2010 70.2 19.1 0.6 89.9
Adjustment in respect of prior periods (1.1) (2.2) (3.3)
Effect of change in UK corporation tax rate (5.2) (1.5) (6.7)
Potential movement in the period unrecognised through:
— Income statement (3.8) 2.4 (0.5) 0.1 (1.8)
— Equity (0.1) (0.1)
As at 27 November 2011 60.1 17.8 0.1 78.0
Adjustment in respect of prior periods 0.7 1.3 2.0
Effect of change in UK corporation tax rate (5.0) (1.4) (6.4)
Potential movement in the period unrecognised through:
— Income statement 0.9 (0.6) 0.1 0.4
— Equity
As at 2 December 2012 56.7 17.1 0.1 0.1 74.0

As at 2 December 2012 the Group had approximately £279.5 million of unutilised tax losses (2011: approximately £278.7 million) available for offset against future profits. A deferred tax asset of £7.9 million (2011: £9.6 million) has been recognised in respect of £34.4 million (2011: £38.5 million) of such losses, the recovery of which is supported by the expected level of future profits of the Group.

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 analysed below:

Intangible
assets
£m
As at 28 November 2010
Recognised through the income statement (0.4)
As at 27 November 2011 (0.4)
Recognised through the income statement
As at 2 December 2012 (0.4)

In the prior period, the Group recognised a deferred tax liability of £0.4 million in respect of intangible assets that management deemed to qualify for research and development corporation tax relief. After corporation tax relief, the timing of 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.