© Rolls-Royce plc 2008 Legal Information

5 Taxation

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	UK		Overseas		Total
	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Current tax
Current tax charge for the year	47	51	72	66	119	117
Less double tax relief	(7)	(47)	—	—	(7)	(47)
	40	4	72	66	112	70
Adjustments in respect of prior years	(27)	(2)	21	(6)	(6)	(8)
	13	2	93	60	106	62
Deferred tax
Deferred tax charge for the year	65	296	13	33	78	329
Adjustments in respect of prior years	(8)	1	(8)	5	(16)	6
Deferred tax credit resulting from reduction in tax rates ¹	(23)	—	(12)	—	(35)	—
	34	297	(7)	38	27	335
Recognised in the income statement	47	299	86	98	133	397

**Other tax charges/(credits)**
	2007 £m	2006 £m
Recognised in the statement of recognised income and expense – deferred tax ¹	95	91
Recognised directly in equity – current tax	(43)	(18)
– deferred tax ¹	23	(58)
	75	15
¹ Deferred tax assets and liabilities have been restated to reflect the reductions in corporate tax rates in the UK and Germany which take effect in 2008. The resulting charges or credits have been recognised in the income statement except to the extent that they relate to items previously charged or credited to the statement of recognised income and expense or equity. Accordingly in 2007, £35m has been credited to the income statement, £9m has been charged to the statement of recognised income and expense, and £5m has been charged directly to equity.

**Tax reconciliation**
	2007 £m	2006 £m
Profit before taxation	733	1,391
Less share of profits of joint ventures (note 10)	(66)	(47)
Profit before taxation excluding joint ventures	667	1,344

Nominal tax charge at UK corporation tax rate 30% (2006 30%)	200	403
UK R&D credit	(22)	(19)
Other items	12	15
Adjustments in respect of prior years	(22)	(2)
Reduction in opening deferred taxes resulting from reduction in tax rate	(35)	—
	133	397
Analysis of taxation charge:
Underlying items (note 2)	193	190
Non-underlying items	(60)	207
	133	397

**Deferred taxation assets and liabilities**
	2007 £m	2006 £m
At January 1	(111)	261
Amount charged to income statement	(27)	(335)
Amount charged to statement of recognised income and expense (SORIE)	(95)	(91)
Amount (charged)/credited to equity	(23)	58
On acquisition of business	—	1
Exchange movements	(8)	(5)
At December 31	(264)	(111)
Analysed as:
Deferred tax assets	81	141
Deferred tax liabilities	(345)	(252)
	(264)	(111)
Deferred tax not recognised on unused tax losses and other items ¹	160	154

¹ Deferred tax not recognised on the basis that the future economic benefit is uncertain.

The analysis of the deferred tax position is as follows:
	At January 1, 2007 £m	Recognised in income statement £m	Recognised in SORIE £m	Recognised in equity £m	Exchange movements £m	December 31, 2007 £m
Property, plant and equipment	(145)	2	—	—	—	(143)
Other temporary differences	(278)	84	—	(23)	(6)	(223)
Pensions and other post-retirement scheme benefits	314	(133)	(144)	—	(2)	35
Foreign exchange and commodity financial assets and liabilities	(183)	13	49	—	—	(121)
Losses	117	7	—	—	—	124
Advance corporation tax	64	—	—	—	—	64
	(111)	(27)	(95)	(23)	(8)	(264)
In addition, there are temporary differences of £943m (2006 £593m) relating to investments in subsidiaries and joint ventures. No deferred tax has been provided in respect of these differences, since the timing of the reversals can be controlled and it is probable that the temporary differences will not reverse in the future.