The net amount of deferred taxation debited to the Consolidated Statement of Comprehensive Income in the year was £3.2 million (2022: debited £0.1 million).
The Group operates in the United Kingdom which has enacted new legislation to implement the global minimum top-up tax. The Group does not expect to be subject to the top-up tax in relation to its operations in these jurisdictions as both the statutory tax rates and adjusted effective tax rates are expected to continue to be above 15 per cent. The newly enacted legislation is only effective from 1 January 2024 so there is no current tax impact for the year ended 31 December 2023.
The Group has applied a temporary mandatory relief from deferred tax accounting for the impacts of the top-up tax and will account for it as current tax when it is incurred. If top-up tax had been applied in 2023 the Group would not expect that any top-up tax would have arisen.
The majority of the Group’s profits are earned in the UK with an average rate of corporation tax being 23.5 per cent for the year to 31 December 2023. The UK corporate tax rate increased to 25 per cent from April 2023 and the deferred taxation liability at 31 December 2023 has been calculated at 25 per cent, which is the rate at which the deferred tax is expected to unwind in the future.
Capital allowances are tax reliefs provided in law for the expenditure the Group makes on fixed assets. The rates are determined by Parliament annually, and spread the tax relief due over a number of years. This contrasts with the accounting treatment for such spending, where the expenditure on fixed assets is treated as an investment with the cost then being spread over the anticipated useful life of the asset, and/or impaired if the value of such assets is considered to have reduced materially.
The different accounting treatment of fixed assets for tax and accounting purposes is one reason why the taxable income of the Group is not the same as its accounting profit.
Some expenses incurred may be entirely appropriate charges for inclusion in the Financial Statements but are not allowed as a deduction against taxable income when calculating the Group’s tax liability for the same accounting period. Examples of such disallowable expenditure include business entertainment costs and some legal expenses.
The Group’s overseas operations comprise a manufacturing operation in Belgium up until its disposal on 13 April 2023 and sales and administration offices in the USA and China. The sales of these units, in total, were under 5 per cent of the Group’s turnover in the year ended 31 December 2023. In total, the trading profits were not material and a minimal amount of tax is due to be paid overseas.