| 2019
£m | 2018
£m |
|---|
| Current tax | | |
| – UK corporation tax | 1.0 | 2.3 |
| – overseas tax at prevailing local rates | 16.5 | 11.5 |
| – adjustment in respect of prior years | 1.6 | (0.4) |
| Total current tax expense | 19.1 | 13.4 |
| Deferred tax | | |
| – origination and reversal of temporary differences | (14.0) | (9.2) |
| – adjustment in respect of tax rates | (8.0) | (11.2) |
| – adjustment in respect of prior years | (0.2) | (0.2) |
| Total deferred tax credit | (22.2) | (20.6) |
| Total income tax credit in the Consolidated Income Statement | (3.1) | (7.2) |
The tax on the Group's profit before taxation differs from the standard rate of UK corporation tax of 19.0% (2018: 19.0%). The differences to this rate are explained below:
| 2019
£m | 2018
£m |
|---|
| Profit before taxation | 27.8 | 28.9 |
| Tax at 19.0% (2018: 19.0%) | 5.3 | 5.5 |
| Effect of: | | |
| – expenses not deductible | 1.2 | 0.5 |
| – acquisition expenses | 0.4 | 0.7 |
| – research and development related tax credits | (0.1) | (0.1) |
| – patent box tax credits | (2.6) | (2.6) |
| – impact of financing (income not taxable) | (0.9) | (0.5) |
| – share in results of associates | (0.1) | – |
| – effects of overseas tax rates | 0.4 | 1.0 |
| – movement in unrecognised deferred tax | – | 0.1 |
| – adjustment in respect of prior years | 1.3 | (0.6) |
| – change in tax rates | (8.0) | (11.2) |
| Total income tax credit in the Consolidated Income Statement | (3.1) | (7.2) |
Recurring items in the tax reconciliation include: research and development related tax credits and patent box incentives; expenses not deductible; and the impact of financing. The effective tax rate is -11.2% (excluding non-underlying items the effective tax rate is 21.2%).
Tax (Charge)/Credit Recognised Directly in Equity
| 2019
£m | 2018
£m |
|---|
| Deferred tax on employee benefit obligations | – | – |
| Tax recognised in Consolidated Statement of Comprehensive Income | – | – |
| | | |
| Corporation tax on equity settled transactions | 0.4 | 1.0 |
| Deferred tax on equity settled transactions | (1.2) | 0.9 |
| Total tax recognised in Equity | (0.8) | 1.9 |
The UK current tax rate used for the period is 19.0% which is the enacted rate from 1 April 2017. Finance Act 2016 which was substantively enacted in September 2016 included provisions to reduce the rate of corporation tax to 17.0% with effect from 1 April 2020. Deferred tax has been calculated using the rate of 19.0% and 17.0% based on the timing of when each individual deferred tax balance is expected to reverse in the future.
The Dutch current tax rate used for the period is 25.0%, however this rate is reducing to 22.5% in 2020 and to 20.5% in 2021. The tax rate applied for deferred tax purposes is based on the timing of when each individual deferred tax balance is expected to reverse in the future. The impact of revaluing the deferred tax balances has been included within non-underlying items.
In the results to 30 June 2018 US tax reform gave rise to a transitional one-off non-underlying tax credit of £10.0 million primarily due to the revaluation of the US deferred tax assets and liabilities following the reduction in the US Federal rate from 35.0% to 21.0%.
Similarly, deferred tax arising in other overseas jurisdictions has been based on the enacted rate.
EU CFC Challenge
In October 2017 the European Commission (the Commission) opened a State Aid investigation into the Group Financing Exemption in the UK Controlled Foreign Company (CFC) rules. On 25 April 2019 the Commission issued its decision on the CFC Group Financing Exemption concluding that part of the UK measures were unlawful and incompatible instructing the UK Government to recover the State Aid. The UK Government filed an annulment appeal on 12 June 2019. In common with other UK-based international companies Dechra have financing arrangements in line with the current UK legislation. We have calculated the maximum potential State Aid claimed as £4.0 million excluding penalties and interest.
Future Tax Charge
The Group's future tax charge, and its effective tax rate could be affected by several factors including the impact of the implementation of the OECD's Base Erosion and Profit Shifting ('BEPS') actions, and changes in applicable tax rates and legislation in the territories in which it operates.