Notes to the accounts

6 Taxation

	Continuing Period ended 31 July 2007 £m	Continuing Period ended 5 August 2006 £m	Discontinued Period ended 31 July 2007 £m	Discontinued Period ended 5 August 2006 £m
The taxation charge for the year comprises
– current income taxation	13.6	56.5	87.6	37.0
– deferred taxation	39.5	8.9	0.6	5.8
Total taxation expense in the income statement	53.1	65.4	88.2	42.8
Current income taxation
– UK corporation tax
– foreign tax	13.6	56.5	62.6	37.0
– discontinued tax			25.0
	13.6	56.5	87.6	37.0

Reconciliation of the total tax charge

The tax expense on the profit for the period is different from the standard rate of corporation tax in the UK of 30% (2006: 30%). The difference is reconciled as follows:

	Continuing Period ended 31 July 2007 £m	Continuing Period ended 5 August 2006 £m	Discontinued Period ended 31 July 2007 £m	Discontinued Period ended 5 August 2006 £m
Profit/(loss) before tax	256.0	(37.3)	1,613.4	169.7
Notional taxation expense at UK rate of 30% (2006: 30%)	76.8	(11.2)	484.0	50.9
Effect of overseas taxation	15.7	(13.5)	5.0	4.3
Compliance benefits	(16.5)		(4.0)
Local incentives	(16.1)	(4.4)	(7.0)	(10.7)
Sale of investment/impairment of financial asset	(7.2)	97.5
Tax effect of other non-headline items	0.4	(7.5)
Tax effect of Aerospace sale			(389.8)
Other		4.5		(1.7)
	53.1	65.4	88.2	42.8
Comprising
– taxation on headline profit	86.4	80.8
– tax relief on non-headline loss	(33.3)	(15.4)
– taxation on discontinued profit			36.9	42.8
– tax on sale of discontinued operations			51.3
Total taxation expense in the income statement	53.1	65.4	88.2	42.8

	Period ended 31 July 2007 £m	Period ended 5 August 2006 £m
Tax on items charged/(credited) to equity
Current tax credit
– share-based payment	(10.3)
– exchange gains	(2.4)
	(12.7)
Deferred tax charge
– retirement benefit schemes	30.1	24.0
– share-based payment	9.4	2.6
– derivatives		7.4
	26.8	34.0

Deferred taxation

	Excess tax depreciation on fixed assets and goodwill £m	Share-based payment £m	Retirement benefit obligations £m	Capitalised development expenditure £m	Other £m	Total £m
At 1 August 2005	(62.1)	22.3	86.9	(33.6)	84.4	97.9
Credit/(charge) to income statement	10.8	4.8	(25.5)	19.9	(24.7)	(14.7)
Charge to equity		(2.6)	(24.0)		(7.4)	(34.0)
Other					(0.8)	(0.8)
Exchange adjustments	5.4		(4.7)	1.9	(8.4)	(5.8)
At 5 August 2006	(45.9)	24.5	32.7	(11.8)	43.1	42.6
Deferred tax assets	(41.3)		55.2	(1.4)	79.8	92.3
Deferred tax liabilities	(4.6)	24.5	(22.5)	(10.4)	(36.7)	(49.7)
At 5 August 2006	(45.9)	24.5	32.7	(11.8)	43.1	42.6
(Charge)/credit to income statement	(41.3)	2.3	(55.6)	22.8	31.7	(40.1)
Charge to equity		(9.4)	(30.1)			(39.5)
Other					(1.5)	(1.5)
Disposals	12.0			(22.0)	27.4	17.4
Exchange adjustments	3.1	(1.7)	(2.2)	0.8	(2.9)	(2.9)
At 31 July 2007	(72.1)	15.7	(55.2)	(10.2)	97.8	(24.0)
Deferred tax assets	11.1		12.7	(4.4)	74.6	94.0
Deferred tax liabilities	(83.2)	15.7	(67.9)	(5.8)	23.2	(118.0)
At 31 July 2007	(72.1)	15.7	(55.2)	(10.2)	97.8	(24.0)

Included in other above is a deferred tax liability of £10m (2006: £10m) relating to unremitted overseas earnings. No additional tax liabilities have been recognised because the Group is in a position to control the timing of other temporary differences and it is probable that such differences will not reverse in the future.

The Group has not recognised deferred tax assets relating to tax losses of £17.9m (2006: £205.2m), due to uncertainty as to their recoverability. The expiry date of operating losses carried forward is dependent upon the law of the various territories in which the losses arise. A summary of expiry dates for losses in respect of which restrictions apply is set out below.

Restricted losses

	2007 £m	Expiry of losses	2006 £m	Expiry of losses
Territory
– Americas	10.6	2019-2025	26.0	2018-2025
– Europe	5.0	2014	4.2	2014-2024
Total restricted losses	15.6		30.2
Unrestricted losses:
– operating losses	2.3	No expiry	28.2	No expiry
– capital losses			128.4	No expiry
– other			18.4	No expiry
Total unrestricted losses	2.3		175.0
Total	17.9		205.2

Smiths Group divisions:
Smiths Detection, Smiths Medical, Smiths Specialty Engineering