BT 2010 Annual Report Download - page 52

REVIEW OF THE YEAR FINANCIAL REVIEW
50 BT GROUP PLC ANNUAL REPORT & FORM 20-F
31 March 2010. The financial statements of BT Group plc are
prepared in accordance with UK GAAP.
Other comprehensive income
Included in other comprehensive loss for the year of £3,661m (2009:
£3,911m) are actuarial losses of £4,324m (2009: £7,037m), foreign
exchange losses on the translation of overseas operations of £119m
(2009: £692m gain), net fair value losses on cash flow hedges of
£575m (2009: £570m) and the tax credit of £1,350m (2009:
£1,859m) relating to items recognised in other comprehensive
income.
Treasury shares
At 31 March 2010 the company held 401m shares (2009: 409m) in
Treasury. These shares are used to settle exercises of share options
and share awards. The carrying value of £1,105m (2009: £1,109m)
has been deducted from retained earnings. BT did not purchase any
shares for cancellation in 2010 (2009: 250m) or any shares to be
held as Treasury (2009: 143m). The Board suspended the £2.5bn
share buy back programme in July 2008 as a result of the group’s
strategic investment in fibre deployment.
Taxation
Total tax contribution
BT is a significant contributor to the UK Exchequer, collecting and
paying taxes of around £3bn in a typical year. In 2010 we collected
and paid £1,299m of VAT, £896m of PAYE and National Insurance,
£34m of UK corporation tax for the current year (in addition to
receiving a £425m repayment in respect of overpayments and
settlements of earlier years) and £226m of UK business and UK
network rates.
Our total UK Exchequer tax contribution as measured in the
Hundred Group Total Tax Contribution Survey for 2009 ranked BT
the fourth highest contributor. The relative percentage contribution
of the total tax payments made in 2010 is shown below.
Tax strategy
Our strategy is to comply with relevant regulations whilst
minimising the tax burden for BT and our customers. We seek to
achieve this through engagement with our stakeholders including
HMRC and other tax authorities, partners and customers.
The Board considers that it has a responsibility to minimise the
tax burden for the group and its customers. In this respect the
Board considers it entirely proper that BT endeavours to structure
its affairs in a tax efficient manner where there is strong commercial
2010 Percentage of total tax contribution
VAT 53%
PAYE and NI 36%
UK business and network rates 9%
UK corporation tax 2%
merit, especially in support of customer initiatives, with the aim of
supporting our capital or operational expenditure programmes and
reducing our overall cost of capital. This planning is carried out
within Board defined parameters. The Board regularly reviews the
group’s tax strategy.
We operate in over 170 countries and this comes with additional
complexities in the taxation arena. To reduce those complexities we
have implemented a simplified trading model for our BT Global
Services division in accordance with OECD Transfer Pricing Guidelines.
The majority of tax issues arise in the UK with a small number of
issues arising in our overseas jurisdictions. In terms of the group’s UK
corporation tax position, all years up to 2007 are agreed. For 2008
there is one minor open issue which we are discussing with HMRC
with a view to resolving. The UK corporation tax returns for 2009
were all filed prior to the statutory deadline of 31 March 2010.
We have an open, honest and positive working relationship with
HMRC. We are committed to prompt disclosure and transparency in
all tax matters with HMRC. We recognise that there will be areas of
differing legal interpretations between ourselves and tax
authorities and where this occurs we will engage in proactive
discussion to bring matters to as rapid a conclusion as possible.
Our positive working relationship with HMRC was demonstrated
in 2007 and again in 2010 when we worked intensively with HMRC
to accelerate the agreement of substantially all outstanding tax
matters relating to the 2006, 2007 and 2008 tax years, resulting in
a tax repayment of £215m and associated interest of £11m. In
addition, in 2010 we were refunded £210m in respect of overpaid
corporation tax in 2009 following the recognition of the contract
and financial review charge in 2009.
We have a policy to lobby the UK Government directly on tax
matters that are likely to impact our customers or shareholders and
in particular respond to consultation documents where the impact
could be substantial. We also lobby the UK Government indirectly
though the CBI, various working groups and committees and
leading professional advisors.
Tax accounting
At each financial year end an estimate of the tax charge is
calculated for the group and the level of provisioning across the
group is reviewed in detail. As it can take a number of years to
obtain closure in respect of some items contained within the
corporation tax returns it is necessary for us to reflect the risk that
final tax settlements will be at amounts in excess of our submitted
corporation tax computations. The level of provisioning involves a
high degree of judgement.
In 2010 BT reached agreement with HMRC on all major open
issues resulting in a cash repayment of £215m and the recognition of
an overall net credit to the income statement of £230m. The tax
charge arising on our 2010 profits of £245m is higher than our cash
tax paid of £76m in the same period predominantly due to the
current tax deduction available on our pension deficit payment of
£525m and the phasing of UK corporation tax instalment payments.
In 2009 we paid cash tax in excess of the income statement
charge. We were subsequently refunded £210m in 2010 primarily
arising on the impact of the BT Global Services contract and
financial review charges.
In 2008 the cash tax paid was lower than the income statement
charge. This was partly due to the phasing of UK corporation tax
instalment payments, the level of provisioning for risks, the
taxation of specific items, the impact of deferred tax and the impact
of overseas losses or profits which are relieved or taxed at different
rates from that of the UK.