Responsibility

Responsible Tax

HomeResponsibilityOur ApproachResponsible Tax

Paying our fair share of tax to build a successful and sustainable business.

Our approach to responsible tax management is to pay the correct amount of tax in the right jurisdictions and on time.  The tax we pay reflects the underlying commercial transactions across our business and fulfills our legal obligations.

Deciding these matters can involve interpretation of rules and forming judgements, so we seek to be open and transparent about our approach, our decision-making processes and the outcomes achieved. This is in keeping with our Business Principles, which provide the foundation for how we operate.

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If you have any questions about Responsible Tax you can send your queries to GroupTax@centrica.com.

How we apply our approach

Our approach to responsible taxation applies both to the taxes levied on the business directly and to amounts which we are required to collect from those we do business with, such as customers, employees and commercial partners. 

Responsible taxation also extends to our policy on the use of subsidiaries in jurisdictions (‘tax havens’) which levy low or no taxation on companies.  We will only normally incorporate a subsidiary in a tax haven where there is a business requirement to do so. 

All of our subsidiaries are liable for corporation tax in the country in which they were incorporated, except two companies which we acquired a number of years ago.  The subsidiaries concerned are incorporated in Jersey but pay tax on all of their taxable profits in the UK.

Tax transparency – tax strategy

We seek to maintain an open and constructive relationship with HMRC and tax authorities in all countries in which we operate.

Our approach to responsible tax management (our strategy) covers all subsidiaries included in the Centrica Group and has been shared with HMRC. 

Our Chief Financial Officer has overall Board responsibility for tax governance and strategy, with oversight provided by the Board and the Audit Committee.  In addition, each year the Head of Tax sets out the Group’s compliance with its principles of responsible tax management to the Board of Centrica plc.

Tax disclosure

As well as explaining our approach to tax, the Annual Report and Accounts (‘ARA’), includes:

  • An explanation of the difference between the tax charge per the accounts and the cash tax we pay each year to the Governments of the countries in which Centrica operates.
  • Calculation of the adjusted effective tax rate in the UK and outside the UK. The effective tax rate is calculated as the tax charge in the accounts divided by the profit before tax expressed as a percentage. 
  • A reconciliation of the Group’s effective tax rate to the standard rate of UK corporation tax. For international groups such as Centrica, the effective tax rate is generally different to the UK Corporation tax rate (for the year ended 31 December 2015 the UK Corporation tax rate is 20.25%).  Centrica’s effective tax rate is different to the UK Corporation tax rate because:
     
    • The Group operates in countries whose profits are subject to corporation tax rates ranging from 12.5% to 78%;
    • UK oil and gas profits and losses are subject to additional tax (supplementary charge) of 30% in addition to 20.25% corporation tax (a total of 50.25%).  Petroleum revenue tax is also paid on some gas fields;
    • Some expenses, such as business entertainment, are not tax deductible.Separate disclosure of corporate income tax liabilities (disclosed as current tax assets and liabilities in the Balance Sheet) and the amount of corporate income tax paid in the year and the Group Cash Flow Statement
  • An explanation of the Group’s deferred tax balances, including details of the main components of the asset or liability and the deferred tax charge for the year. Deferred tax is an accounting measure which seeks to reconcile differences between the accounting and tax treatment of the Group’s assets and liabilities.  Tax will be payable or relieved when the difference between the accounting and tax treatment unwinds.
Changes to the way we report our tax transparency

We understand stakeholders concerns around tax and tax transparency.  To address these concerns we have changed the 2015 Annual Report and Accounts to reconcile the current tax charge as well as the total tax charge for the year.

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