Financial Statements

16. Income tax expense/(credit)

The tax expense/(credit) comprises:

Group
52 weeks ended
1 May 2011
52 weeks ended
2 May 2010
£m £m
Current tax
— UK corporation tax charge for the period 11.7
— Adjustment in respect of prior periods (0.4)
Overseas tax 0.8
Deferred tax
— Origination and reversal of temporary differences 1.6 0.2
— Adjustment in respect of prior periods 0.1
Exceptional income tax expense/(credit) 3.4 (49.9)
Total tax expense/(credit) 17.2 (49.7)

Factors affecting the tax expense/(credit) for the period are as follows:

Group
52 weeks ended
1 May 2011
52 weeks ended
2 May 2010
£m £m
Profit before tax 47.3 22.5
Profit multiplied by the standard rate in the UK — 27.83% (2010: 28%) 13.2 6.3
Expenses not deductible for tax purposes 0.6 0.5
Non-qualifying additions 0.3 0.2
Profits of the LLP not subject to corporation tax (6.8)
Prior year adjustment (0.3)
Total income tax expense excluding exceptional items 13.8 0.2
Exceptional income tax expense/(credit) 3.4 (49.9)
Total income tax expense/(credit) including exceptional items 17.2 (49.7)

Net deferred tax movement is as follows:

Group
52 weeks ended
1 May 2011
52 weeks ended
2 May 2010
£m £m
Opening net deferred tax (49.7) (49.9)
Deferred tax liability on acquisition 3.2
Charged to the statement of comprehensive income
— Accelerated capital allowances (0.6) (0.2)
— Movement on goodwill and intangibles 7.1 0.8
— Other temporary differences (0.9) (0.4)
— Revaluation of derivatives and forward exchange contracts (0.3)
Closing net deferred tax (note 23) (41.2) (49.7)
Represented by:
— Accelerated capital allowances 2.3 2.9
— Other intangibles 3.0
— Temporary differences (losses) (0.5) (0.4)
— Recognition of lease incentives (1.2) (0.6)
— Goodwill and other intangibles arising in subsidiary entities (44.4) (51.5)
— Revaluation of derivatives and forward exchange contracts to fair value (0.4) (0.1)
Closing net deferred tax (note 23) (41.2) (49.7)

In preparation for the listing of the business on the London Stock Exchange, a substantial reorganisation was undertaken with effect from 7 March 2010 and the Group's subsidiaries acquired net assets with a total fair value of £375m. Within this amount, £340m was identified as intangible assets and goodwill, of which the Directors believe that £187m should be deductible against taxable profits over the useful economic lives of the respective assets. This gave rise to £52.4m of the exceptional deferred tax credit booked in 2010. Based on this the Directors consider that the Group's future cash tax expense should be reduced by approximately £3.8m per annum.

The Group's corporation tax expense of £13.8m, excluding exceptional items, represents an effective tax rate of 29.2% for the period ended 1 May 2011. This is slightly higher than the statutory rate of 27.8% primarily due to the non-deductibility of costs associated with the acquisition of SuperGroup Europe BVBA. Taking into account the annual tax amortisation of goodwill, as discussed above and adjusting for non-taxable IFRS adjustments included within profit before tax, the effective cash tax rate for the period is 22.9%.

The UK corporation tax rate reduction from 28% to 26%, with effect from 1 April 2011 is substantially enacted at the balance sheet date so the deferred tax balances at 1 May 2011 have been remeasured resulting in an exceptional deferred tax charge of £3.4m. The reduction in rate from 26% to 25% was not enacted until 5 July 2011 and so does not impact the current year, but a deferred tax charge of £1.7m should arise in the following period as a result of the re-measurement of deferred tax balances to 25%.

Discussions continue with HMRC to agree that the deferred tax asset recognised in the balance sheet is recoverable. The Directors are confident that allowance will be granted in full.