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Notes to the financial statements

10. Tax on profit on ordinary activities

a) Analysis of charge for the year

US$ million 2009 2008
United Kingdom corporation tax at 28% 50 -
United Kingdom corporation tax at 28.5% - 18
South Africa tax 567 840
Other overseas tax 700 1,155
Prior year adjustments (45) (78)
Current tax (excluding special items and remeasurements tax) 1,272 1,935
Deferred tax (excluding special items and remeasurements tax) 33 610
Tax (excluding special items and remeasurements tax) 1,305 2,545
Special items and remeasurements tax (188) (94)
Income tax expense 1,117 2,451

b) Factors affecting tax charge for the year

The effective tax rate for the year of 27.7% (2008: 28.6%) is lower (2008: higher) than the applicable standard rate of corporation tax for 2009 in the United Kingdom (28%) (2008: 28.5%). The reconciling items are:

US$ million 2009 2008
Profit on ordinary activities before tax 4,029 8,571
Tax on profit on ordinary activities calculated at United Kingdom corporation tax rate of 28% 1,128 -
Tax on profit on ordinary activities calculated at United Kingdom corporation tax rate of 28.5% - 2,443

   
Tax effect of share of net income from associates (24) (317)

   
Tax effects of:    
Special items and remeasurements    
Operating special items and remeasurements 558 28
Profits and losses on disposals and financing remeasurements (340) (255)
Tax special item 107 -
Tax remeasurements (469) 153
Items not taxable/deductible for tax purposes    
Exploration expenditure 22 20
Non-deductible net foreign exchange loss 6 28
Non-taxable/deductible net interest (income)/expense (2) 10
Other non-deductible expenses 65 127
Other non-taxable income (39) (78)
Temporary difference adjustments    
Changes in tax rates - (84)
Movements in tax losses 5 38
Enhanced tax depreciation - (26)
Other temporary differences (45) 42
Other adjustments    
Secondary tax on companies and dividend withholding taxes 356 634
Effect of differences between local and United Kingdom rates (139) (181)
Prior year adjustments to current tax (45) (78)
Other adjustments (27) (53)
Income tax expense 1,117 2,451

IAS 1 requires income from associates to be presented net of tax on the face of the income statement. Associates' tax is therefore not included within the Group's income tax expense. Associates' tax included within 'Share of net income from associates' for the year ended 31 December 2009 is $286 million (2008: $606 million). Excluding special items and remeasurements this becomes $235 million (2008: $623million).

The effective rate of tax before special items and remeasurements including attributable share of associates' tax for the year ended 31 December 2009 was 33.1%. This was broadly in line with the equivalent effective rate of 33.4% for the year ended 31 December 2008. In future periods it is expected that the effective tax rate, including associates' tax, will remain above the United Kingdom statutory tax rate.

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Annual Report 2009