National Grid 2014 Annual Report Download - page 104

6. Taxation
Tax is payable in the territories where we operate, mainly the UK and US. This note gives further details of the tax charge and tax
liabilities, including current and deferred tax. The current tax charge is the tax payable on this year’s taxable profits. Deferred tax is
anaccounting adjustment to provide for tax that is expected to arise in the future due to differences in accounting and tax bases.
The tax charge for the period is recognised in the income statement, the statement of comprehensive income or directly in equity,
according to the accounting treatment of the related transaction. The tax charge comprises both current and deferred tax.
Current tax assets and liabilities are measured at the amounts expected to be recovered from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amounts are those that have been enacted or substantively enacted by the reporting date.
The calculation of the Group’s total tax charge involves a degree of estimation and judgement, and management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is provided for using the balance sheet liability method and is recognised on temporary differences between the carrying
amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised on all taxable temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. However, deferred
tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial
recognition of other assets and liabilities in a transaction (other than a business combination) that affects neither the accounting nor
taxable profit or loss.
Deferred tax liabilities are recognised on taxable temporary differences arising on investments in subsidiaries and jointly controlled
entities except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised,
based on the tax rates and tax laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the deferred tax asset to be recovered. Unrecognised deferred tax assets
are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow
the deferred tax asset to be recovered.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Company and its subsidiaries intend to
settle their current tax assets and liabilities on a net basis.
Notes to the consolidated
financial statements continued
102 National Grid Annual Report and Accounts 2013/14