Taxation

12 Months Ended

Dec. 31, 2023

Major components of tax expense (income) [abstract]

7. Taxation

In 2023, the effective tax rate on profit before taxation was 43.1% (2022: 33.1%, 2021: 24.2%)

The tax charge comprises:


	2023	2022	2021
	£m	£m	£m
Corporation tax
Current year	432.8	425.8	404.0
Prior years	(85.6)	(55.5)	(41.4)
	347.2	370.3	362.6
Deferred tax
Current year	(197.1)	9.4	(131.0)
Prior years	(1.0)	4.7	(1.5)
	(198.1)	14.1	(132.5)
Tax charge	149.1	384.4	230.1

The corporation tax credit for prior years in 2023, 2022 and 2021 primarily comprises the release of a number of provisions following the resolution of tax matters in various countries.

The current year deferred tax credit of £197.1 million (2022: debit of £9.4 million, 2021: credit of £131.0 million) reflects the tax impact of accelerated amortisation of intangible assets as a result of the creation of VML.

The tax charge for the year can be reconciled to profit before taxation in the consolidated income statement as follows:


	2023		2022		2021
	£m		£m		£m
Profit before taxation	346.3		1,159.8		950.8
Tax at the corporation tax rate of 23.5%1	81.4		220.4		180.7
Tax effect of (earnings)/losses from associates	(15.0)		17.4		(13.3)
Irrecoverable withholding taxes	34.8		25.9		52.3
Tax effect of items that are not deductible in determining taxable profits	39.0		66.7		29.3
Tax effect of non-deductible goodwill impairment	16.2		7.2		0.6
Effect of different tax rates in subsidiaries operating in other jurisdictions	41.8		94.3		81.2

Origination and reversal of unrecognised temporary differences	8.8		(1.1)		(36.3)
Tax losses not recognised or utilised in the year	44.0		9.8		7.4
Utilisation of tax losses not previously recognised	(15.3)		(5.4)		(5.1)
Net release of prior year provisions in relation to acquired businesses	(3.9)		(2.8)		(1.1)
Other prior year adjustments	(82.7)		(48.0)		(41.8)
Impact of deferred tax rate change	—		—		(23.8)
Tax charge	149.1		384.4		230.1
Effective tax rate on profit before tax	43.1	%	33.1	%	24.2	%

Note

1As the Group is subject to the tax rates of more than one country, it has chosen to present its reconciliation of the tax charge using the UK corporation tax rate of 23.5% (2022: 19.0%, 2021: 19.0%).

Factors affecting the tax charge in future years

The tax charge may be affected by the impact of acquisitions, disposals and other corporate restructurings, the resolution of open tax issues, and the ability to use brought forward tax losses. Changes in local or international tax rules, and changes arising from the application of existing rules, new demands and assessments or challenges by tax authorities, may expose the Group to additional tax liabilities or impact the carrying value of deferred tax assets, which could affect the future tax charge.

Legislation in respect of the UK adoption of OECD Pillar Two Multinational top-up tax was substantively enacted in the UK in 2023 and is to apply for periods commencing 1 January 2024. The Group is currently monitoring the potential impact, which is expected to be insignificant on the Group's tax charge, including assessing the applicability of legislative safe harbours. The IAS 12 exception to recognise and disclose information about deferred tax assets and liabilities related to Pillar Two income taxes has been applied.

Liabilities relating to open and judgemental matters are based upon an assessment of whether the tax authorities will accept the position taken, after considering external advice where appropriate. Where the final tax outcome of these matters is different from the amounts which were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made. The Group does not currently consider that judgements made in assessing tax liabilities have a significant risk of resulting in any material additional charges or credits in respect of these matters, within the next financial year, beyond the amounts already provided.

Following the enactment in 2021 of an increase in the UK corporation tax rate from 19% to 25% from 1 April 2023, the Group remeasured UK deferred tax balances accordingly and recognised a tax credit of £23.8 million in 2021.

Tax risk management

We look to maintain open and transparent relationships with the tax authorities and relevant government representatives in the jurisdictions in which we operate. We maintain active engagement with a wide range of international companies and business organisations with similar issues. We engage advisors and legal counsel to obtain opinions on tax legislation and principles. We have a Tax Risk Management Strategy in place which sets out the controls established and our assessment procedures for decision making and how we monitor tax risk. We monitor proposed changes in taxation legislation and ensure these are taken into account when we consider our future business plans. Our Directors are informed by management of any significant tax law changes, the nature and status of any significant ongoing tax audits, and other developments that could materially affect the Group’s tax position.