12.1 Accounting policy

Tax expense represents the sum of current tax and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items charged or credited in other comprehensive income or directly to equity, in which case the associated tax is also dealt with in other comprehensive income or directly in equity.

Current tax is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

12.2 Income tax costs

2013
£m
2012
£m
Current tax
Overseas taxation31.940.4
Adjustments in respect of prior years(1.3)0.3
Total current tax, continuing operations30.640.7
Deferred tax
Origination and reversal of temporary taxable differences(38.3)(10.3)
Adjustments in respect of prior years1.41.2
Total deferred tax, continuing operations(36.9)(9.1)
Discontinued operations (note 25)31.1
Total income tax costs(6.3)62.7
Total income tax costs attributable to:
Continuing operations— Ordinary activities32.529.6
— Separately reported items(38.8)2.0
Discontinued operations (note 25)31.1
Total income tax costs(6.3)62.7

The Group's total income tax costs relating to separately reported items are analysed in the following table:

Separately reported items2013
£m
2012
£m
US deferred tax asset recognition (note 12.4)29.2
Restructuring charges2.64.6
Demerger costs(11.4)
Amortisation of intangibles7.06.7
Disposal of continuing operations(1.9)
Total tax credit/(charge) on separately reported items38.8(2.0)

Tax charged in the Group statement of comprehensive income in the year amounted to £1.6m (2012: £14.8m credit), £1.4m (2012: £14.8m credit) of which related to net actuarial gains and losses on employee benefits plans.

The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could, adversely or positively, impact the Group's tax charge in the future. Continuing losses, or insufficiency of taxable profit to absorb all expenses, in any subsidiary could have the effect of increasing tax charges in the future, relative to 2013, as effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in notes 3.4 and 12.1.

12.3 Reconciliation of income tax costs to profit before tax

2013
£m
2012
as restated
£m
Profit before tax104.117.2
Tax at the UK corporation tax rate of 23.25% (2012: 24.5%)24.24.2
Overseas tax rate differences4.68.8
Withholding taxes3.65.8
Amortisation of intangibles(2.7)(2.4)
Expenses not deductible for tax purposes0.814.1
US deferred tax asset not previously recognised(29.2)
Deferred tax assets not recognised3.811.3
Utilisation of previously unrecognised tax losses(11.5)(11.7)
Adjustments in respect of prior years0.11.5
Total income tax costs(6.3)31.6

12.4 Deferred tax

Interest
£m
Other
operating
losses
£m
Pension
costs
£m
Intangible
assets
£m
Timing
differences
£m
Total
£m
As at 1 January 20125.1(10.4)(83.6)3.2(85.7)
Exchange adjustments(0.6)(1.0)2.91.12.4
Credit to Group statement of comprehensive income14.814.8
(Charge)/credit to Group income statement(1.0)1.12.1(0.5)1.7
Transferred to held for sale(0.8)0.1(1.0)(1.7)
Business disposals(3.5)(0.6)28.90.925.7
As at 1 January 20133.1(49.6)3.7(42.8)
Exchange adjustments(0.3)1.3(0.9)0.1
Credit to Group statement of comprehensive income(1.4)(0.2)(1.6)
Credit/(charge) to Group income statement2.57.0(1.7)7.8
Credit to Group income statement US14.511.33.429.2
As at 31 December 201314.513.51.7(41.3)4.3(7.3)
2013
£m
2012
£m
Recognised in the Group balance sheet as:
Non-current deferred tax assets43.717.9
Non-current deferred tax liabilities(51.0)(60.7)
Net total deferred tax liabilities(7.3)(42.8)

At the end of 2013, a deferred tax asset in respect of US temporary differences was recognised. The asset of £29.2m represents the partial recognition of temporary differences arising prior to the demerger of Alent in 2012 and was determined in the light of past and forecast future profit performance of the US businesses of Vesuvius, as required by IAS 12. In view of its material size and nature, the tax credit arising from the recognition of this asset is presented separately from the tax charge on headline performance, in accordance with the principles outlined in note 2.6 above. Subsequent increase, decrease and amortisation of the value of this asset would similarly be expected to be presented in this manner, as the Directors consider that the separate identification of deferred tax for temporary differences arising prior to the demerger would assist both in a better understanding of the financial performance achieved and in making projections of future results of the Group.

Tax loss carry-forwards and other temporary differences of £7.5m (2012: £7.0m) were recognised by subsidiaries reporting a loss in 2012 or 2013. On the basis of approved business plans of these subsidiaries, the Directors consider it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits.

The total deferred tax assets not recognised as at 31 December 2013 were £280.0m (2012: £336.6m), as analysed below. In accordance with the accounting policy in note 12.1, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable. In total, there was a decrease of £56.6m (2012: £147.1m) in net unrecognised deferred tax assets during the year.

2013
£m
2012
£m
Capital losses available to offset future UK capital gains (may be carried forward indefinitely)33.038.0
Operating losses126.0144.3
Unrelieved US interest (may be carried forward indefinitely)69.491.8
UK ACT credits (may be carried forward indefinitely)13.113.1
US tax credits4.23.5
Other timing differences34.345.9
Total deferred tax assets not recognised280.0336.6

As at 31 December 2013, the Group had total operating losses carried forward with a tax value of £139.5m (2012: £144.3m).

2013
£m
2012
£m
Losses available to set against future US taxable income, due to expire 2022 to 203129.634.9
Losses available to set against future UK taxable income (may be carried forward indefinitely)77.687.5
Losses available to set against future taxable income in ROW:
Due to expire within 5 years17.17.9
Due to expire between 5 and 20 years1.12.0
Carried forward indefinitely14.112.0
ROW operating losses32.321.9
Total net operating losses139.5144.3

Total net operating losses of £139.5m (2012: £144.3m) comprised unrecognised losses of £126.0m (2012: £144.3m) and recognised losses of £13.5m (2012: nil).

The above losses available relating to the rest of the world arise in a number of countries, each of which is not individually significant, reflecting the spread of the Group's operations.

As at 31 December 2013, the Group had US tax credits carried forward with a tax value of £4.2m (2012: £3.5m) as follows:

2013
£m
2012
£m
US research and experimentation credits (due to expire 2021 to 2033)1.11.0
US foreign tax credits (due to expire 2014 to 2023)3.12.5
US tax credits4.23.5

There are no temporary differences associated with investments in subsidiaries and interests in joint ventures for which deferred tax liabilities have not been recognised.

From 1 April 2013, the UK corporation tax rate reduced to 23% from 24%. Further UK corporation tax rate reductions to 21% from 1 April 2014 and 20% from 1 April 2015 were substantively enacted on 2 July 2013. Accordingly, the Group's closing UK deferred tax liability has been provided using a tax rate of 20%. The impact of using this lower tax rate was to increase the exceptional tax credit relating to the amortisation of intangible assets from £4.5m to £7.0m (2012: £4.7m to £6.7m).