Notes to the accounts

6 Taxation

	Continuing Year ended 31 July 2008 £m	Continuing Period ended 31 July 2007 £m	Discontinued Year ended 31 July 2008 £m	Discontinued Period ended 31 July 2007 £m
The taxation charge for the year comprises
– current income taxation	67.0	13.6		87.6
– deferred taxation	8.0	39.5	2.3	0.6
Total taxation expense in the income statement	75.0	53.1	2.3	88.2
Current income taxation
– UK corporation tax
– foreign tax	67.0	13.6		62.6
– discontinued tax				25.0
	67.0	13.6		87.6

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 29.3% (2007: 30%). The difference is reconciled as follows:

	Continuing Year ended 31 July 2008 £m	Continuing Period ended 31 July 2007 £m	Discontinued Year ended 31 July 2008 £m	Discontinued Period ended 31 July 2007 £m
Profit before tax	319.3	256.0	26.8	1,613.4
Notional taxation expense at UK rate of 29.3% (2007: 30%)	93.7	76.8	7.9	484.0
Effect of overseas taxation	8.2	15.7		5.0
Compliance benefits	(12.4)	(16.5)		(4.0)
Local incentives	(16.1)	(16.1)		(7.0)
Sale of investment		(7.2)
Tax effect of other non-headline items	1.6	0.4
Tax effect of Aerospace sale			(5.6)	(389.8)
	75.0	53.1	2.3	88.2
Comprising
– taxation on headline profit	91.3	86.4
– tax relief on non-headline loss	(16.3)	(33.3)
– taxation on discontinued profit				36.9
– tax on sale of discontinued operations			2.3	51.3
Total taxation expense in the income statement	75.0	53.1	2.3	88.2

	Year ended 31 July 2008 £m	Period ended 31 July 2007 £m
Tax on items charged/(credited) to equity
Current tax credit
– share-based payment	(5.2)	(10.3)
– exchange gains		(2.4)
	(5.2)	(12.7)
Deferred tax (credit)/charge
– retirement benefit schemes	(75.5)	30.1
– share-based payment	3.8	9.4
	(76.9)	26.8

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 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)
Credit/(charge) to income statement	9.7	0.3	(31.3)	(1.6)	12.6	(10.3)
Charge to equity		(3.8)	75.5			71.7
Other					6.0	6.0
Disposals					(12.8)	(12.8)
Exchange adjustments	(1.9)		0.5	(0.2)	2.9	1.3
At 31 July 2008	(64.3)	12.2	(10.5)	(12.0)	106.5	31.9
Deferred tax assets	(2.6)	0.3	19.7	(4.6)	83.4	96.2
Deferred tax liabilities	(61.7)	11.9	(30.2)	(7.4)	23.1	(64.3)
At 31 July 2008	(64.3)	12.2	(10.5)	(12.0)	106.5	31.9

Included in Other above is a deferred tax liability of £9.3m (2007: £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. Other deferred tax also includes the tax benefits of losses carried forward amounting to £26.7m (2007: £15.4m).

The Group has not recognised deferred tax assets relating to tax losses of £102.2m (2007: £17.9m), 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

	2008 £m	Expiry of losses	2007 £m	Expiry of losses
Territory
– Americas	10.7	2019-2025	10.6	2019-2025
– Europe			5.0	2014
Total restricted losses	10.7		15.6
Unrestricted losses:
– operating losses	91.5	No expiry	2.3	No expiry
Total	102.2		17.9

Smiths Group divisions:
Smiths Detection, Smiths Medical, John Crane, Smiths Interconnect, Flex-Tek