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8 Income tax
| All figures in £ millions | Notes | 2006 | 2005 |
|---|---|---|---|
| Current tax | |||
| Charge in respect of current year | (88) | (68) | |
| Recognition of previously unrecognised trading losses | 23 | – | |
| Other adjustments in respect of prior years | 35 | (1) | |
| Total current tax charge | (30) | (69) | |
| Deferred tax | |||
| In respect of timing differences | (73) | (66) | |
| Recognition of previously unrecognised capital losses | 76 | – | |
| Recognition of previously unrecognised trading losses | 37 | – | |
| Other adjustments in respect of prior years | (21) | 19 | |
| Total deferred tax benefit/(charge) | 14 | 19 | (47) |
| Total tax charge | (11) | (116) |
In 2006, the Group has recognised a deferred tax asset in relation to capital losses in the US which will be utilised on the sale of Pearson Government Solutions. Previously it had not been possible to foresee the utilisation of these losses prior to their expiry. In addition, due to improved trading performance and revised strategic plans together with the expected utilisation of US net operating losses in the Pearson Government Solutions sale, the Group has re-evaluated the likely utilisation of operating losses both in the US and UK and as a consequence has increased the amount of the deferred tax asset carried forward in respect of such losses. The combined effect of these two factors was to create a non-recurring tax benefit of £127m.
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the UK tax rate as follows:
| All figures in £ millions | 2006 | 2005 |
|---|---|---|
| Profit before tax | 466 | 446 |
| Tax calculated at UK rate | (140) | (134) |
| Effect of overseas tax rates | (19) | (20) |
| Joint venture and associate income reported net of tax | 7 | 5 |
| Income not subject to tax | 5 | 16 |
| Expenses not deductible for tax purposes | (18) | (9) |
| Utilisation of previously unrecognised tax losses | 7 | 11 |
| Recognition of previously unrecognised tax losses | 136 | – |
| Unutilised tax losses | (3) | (3) |
| Prior year adjustments | 14 | 18 |
| Total tax charge | (11) | (116) |
| UK | (15) | (26) |
| Overseas | 4 | (90) |
| Total tax charge | (11) | (116) |
| Add back: tax benefit on other gains and losses | (4) | (4) |
| Add back: tax benefit on amortisation of acquired intangibles | (10) | (4) |
| Add back: tax charge on other finance income | 5 | 3 |
| Recognition of tax losses | (127) | – |
| Adjusted income tax charge – continuing operations | (147) | (121) |
| Adjusted income tax charge – discontinued operations | (8) | (7) |
| Total adjusted income tax charge | (155) | (128) |
| Tax rate reflected in adjusted earnings | 30.9% | 30.3% |
The tax benefit/(charge) on items charged to equity is as follows:
| All figures in £ millions | 2006 | 2005 |
|---|---|---|
| Deferred tax on share based payments | 2 | 3 |
| Deferred tax on net investment hedges | 3 | – |
| Deferred tax on actuarial gains and losses | 9 | – |
| Current tax on foreign exchange gains and losses | (2) | 9 |
| 12 | 12 |