BT 2012 Annual Report Download - page 59

56 Performance
Cash flow and funding outlook
As described on page 40, as the tax credit in relation to the £2.0bn
lump sum pension deficit payment will distort our cash flow in 2013,
we are now giving our free cash flow outlook excluding the tax benefit
of pension deficit payments. On this normalised basis, free cash flow
amounted to £2.3bn in 2012 and is expected to be broadly flat in 2013
and above £2.4bn in 2014.
We intend to continue our policy of reducing net debt and are
targeting a BBB+ credit rating over the medium term. As a result of our
confidence in our ability to grow free cash flow, we intend to increase
our dividend by 10%–15% for the next three years. We also intend to
spend around £300m in 2013 on a share buyback programme which
will counteract the dilutive effect of all-employee share option plans
maturing in 2013 and add to shareholder returns.
Taxation
The effective tax rate was 24.1% in 2012 compared with 21.7% in
2011. This is slightly lower than the UK statutory rate of 26% (2011:
28%) reflecting the utilisation of tax losses.
We are a significant contributor to the UK Exchequer, collecting and
paying taxes of around £3bn in a typical year.
Total tax contribution
In 2012 our total tax contribution to the UK Exchequer was £3.3bn
(2011: £2.9bn). This ranked us the fifth highest contributor as
measured in the Hundred Group Total Tax Contribution Survey for 2011.
Our total UK tax contribution by type of tax in 2012 is analysed below.
VAT
PAYE & NI
UK corporation tax
UK business &
network rates
£353m
£189m
£1,579m
£1,133m
2012 Total UK tax contribution
Tax strategy
Our strategy is to comply with relevant regulations whilst managing
our tax burden and seeking to maintain a stable effective tax rate.
We seek to achieve this through engagement with our stakeholders
including HM Revenue & Customs (HMRC) and other tax authorities,
partners and customers. We endeavour to structure our affairs in a
tax efficient manner where there is strong commercial merit, with the
aim of supporting our capital or operational expenditure programmes,
supporting customer initiatives and reducing our overall cost of capital.
The parameters which govern our approach are set by the Board, which
regularly reviews the group’s tax strategy.
We operate in over 170 countries and this comes with additional
complexities in the taxation arena. The majority of our tax liabilities
arise in the UK. In terms of our UK corporation tax position, all years
up to 2008 are agreed. We have an open, honest and positive working
relationship with HMRC and are committed to prompt disclosure and
transparency in all tax matters. 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.
Tax expense
Our effective tax rate on profit before taxation and specific items is
lower than the UK statutory rate as the utilisation of overseas losses
and the impact of prior period adjustments is in excess of normal
disallowable costs and other tax adjustments as shown below.
Year ended 31 March
2012
£m
2011
£m
2010
£m
Profit before taxation and
specific items 2,421 2,083 1,735
Tax at UK statutory rate of 26%
(2011 and 2010: 28%) 629 583 486
Overseas losses utilised (75) (53) (35)
Prior period adjustments (74) (36) (37)
Non-deductible items 37 28 44
Other tax adjustments 67 (70) (60)
Effective tax charge before
specific items 584 452 398
Effective tax rate 24.1% 21.7% 22.9%
A reconciliation of reported profit before taxation to effective tax rate is
disclosed in note 10 to the consolidated financial statements.
The UK corporation tax rate changed from 28% to 26% on 1April 2011
and from 26% to 24% on 1 April 2012. The Government has indicated
that it intends to enact future reductions in the UK corporation tax rate
to 22% by 1 April 2014. For 2013 we expect the effective tax rate to be
around 23% reflecting the lower UK statutory rate and the utilisation of
tax losses.
Tax cash payments
The total income tax paid of £400m in 2012 comprised £353m of UK
taxes (2011: £175m, 2010: £34m) and £47m of overseas taxes (2011:
£34m, 2010: £42m). The total tax expense in 2012 was £442m (2011:
£213m expense, 2010: £22m credit).
The tax expense and the cash tax paid in each financial year are
different, principally because UK cash tax payments are paid in
quarterly instalments which straddle two consecutive financial years.
For example, the UK cash tax paid in 2012 of £353m comprised the
final two quarterly instalments in respect of 2011 amounting to £44m
and the first two quarterly instalments in respect of 2012 amounting
to £309m. The quarterly instalments are based on estimates of the
expected tax liability for the full year and are therefore subject to
estimation and may vary from the actual liability.
In addition there are differences in the basis of some items, such as
pension deficit payments, which are deductible for the purpose of cash
tax payments but are not a taxable deduction in the income statement
and therefore do not impact the tax expense. The current tax benefit
associated with pension deficit payments is recognised in retained
Group financial performance
Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information