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DEFERRED TAX
 12 Months Ended
Dec. 31, 2021
Disclosure of deferred taxes [Abstract]  
DEFERRED TAX
NOTE 35: DEFERRED TAX
The Group’s deferred tax assets and liabilities are as follows:
2021202020212020
Statutory position£m£mTax disclosure£m£m
Deferred tax assets3,118 2,741 Deferred tax assets7,095 5,527 
Deferred tax liabilities(39)(45)Deferred tax liabilities(4,016)(2,831)
Asset at 31 December3,079 2,696 Asset at 31 December3,079 2,696 
The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into account the ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting.
Finance Act 2021, which was substantively enacted on 24 May 2021, increases the rate of corporation tax from 19 per cent to 25 per cent with effect from 1 April 2023. The impact of this rate change is an increase in the Group’s net deferred tax asset as at 31 December 2021 of £728 million, comprising a £954 million credit included in the income statement and a £226 million charge included in equity. The tax credit in 2020 included an uplift in deferred tax assets following the announcement by the UK Government that it would maintain the corporation tax rate at 19 per cent.
On 27 October 2021, the UK Government announced its intention to decrease the rate of banking surcharge from 8 per cent to 3 per cent with effect from 1 April 2023. This change was substantively enacted on 2 February 2022 and its impact on deferred tax is therefore not included in these financial statements. Had this change in banking surcharge rate been substantively enacted at 31 December 2021, the impact would have been to recognise a £17 million deferred tax charge in the income statement and an £80 million credit within other comprehensive income, increasing the Group's net deferred tax asset by £63 million.
Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction) can be summarised as follows:
Tax lossesProperty,
plant and
equipment		ProvisionsShare-
based
payments		Pension
liabilities		Derivatives
Asset
revaluations1
Other
temporary
differences		Total
Deferred tax assets£m£m£m£m£m£m£m£m£m
At 1 January 20203,611 663 226 51 53 149 — 185 4,938 
Credit (charge) to the income statement453 5 6 (4)6 10 29 83 588 
Credit (charge) to other comprehensive income— — 22 — (3)— — — 19 
Other charge to equity— — — (18)— — — — (18)
At 31 December 20204,064 668 254 29 56 159 29 268 5,527 
Credit (charge) to the income statement959 76 12 (8)15 541 (29)(49)1,517 
Credit (charge) to other comprehensive income— — 36 — (2)— — — 34 
Other credit to equity— — — 17 — — — — 17 
At 31 December 20215,023 744 302 38 69 700 — 219 7,095 
Capitalised
software
enhancements		Long-term
assurance
business		Acquisition
fair value		Pension
assets		Derivatives
Asset
revaluations1
Other
temporary
differences		Total
Deferred tax liabilities£m£m£m£m£m£m£m£m
At 1 January 2020(21)(830)(516)(150)(601)(35)(163)(2,316)
(Charge) credit to the income statement(207)(13)144 (77)(46)(25)(76)(300)
(Charge) credit to other comprehensive income— — — (165)(109)60 — (214)
Exchange and other adjustments— — — — — — (1)(1)
At 31 December 2020(228)(843)(372)(392)(756)— (240)(2,831)
(Charge) credit to the income statement(47)(319)20 (93)(567)(27)(93)(1,126)
(Charge) credit to other comprehensive income— — — (846)814 (29)— (61)
Exchange and other adjustments— — — — — — 2 2 
At 31 December 2021(275)(1,162)(352)(1,331)(509)(56)(331)(4,016)
1Financial assets at fair value through other comprehensive income.
At 31 December 2021 the Group carried net deferred tax assets on its balance sheet of £3,118 million (2020: £2,741 million) principally relating to tax losses carried forward.
Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits against which the underlying tax deductions can be utilised. The Group has recognised a deferred tax asset of £5,023 million (2020: £4,064 million) in respect of trading losses carried forward. Substantially all of these losses have arisen in Bank of Scotland plc and Lloyds Bank plc, and they will be utilised as taxable profits arise in those legal entities in future periods.
The Group’s expectations of future UK taxable profits require management judgement, and take into account the Group’s long-term financial and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans, the Board-approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks associated with future regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable profits. Under current law there is no expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and the Group’s commitment to the UK market, in management's judgement it is more likely than not that the value of the losses will be recovered by the Group while still operating as a going concern. Banking tax losses that arose before 1 April 2015 can only be used against 25 per cent of taxable profits arising after 1 April 2016, and they cannot be used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax losses is only expected to be fully recovered by 2047 (2020: 2049) in the base case forecast. The rate of recovery of the Group’s tax loss asset is not a straight line, being affected by the relative profitability of the legal entities in future periods, and the relative size of their tax losses carried forward. It is expected in the base case that 60 per cent of the value will be recovered by 2034, when Bank of Scotland plc will have utilised all of its available tax losses. It is possible that future tax law changes could materially affect the timing of recovery and the value of these losses ultimately realised by the Group. The value of the deferred tax asset in respect of tax losses increased by £1,156 million in 2021 as a result of the change in UK tax rates.
Deferred tax not recognised
Deferred tax assets of £5 million (2020: £85 million) have been recognised in respect of the future tax benefit of certain expenses of the life assurance business carried forward. The deferred tax asset not recognised in respect of the remaining expenses is £226 million (2020: £414 million), and these expenses can be carried forward indefinitely. The unrecognised deferred tax asset has decreased in 2021 because, as UK markets performed strongly, there was a significant decrease in the amount of expenses to carry forward.
Deferred tax assets of £167 million (2020: £114 million) have not been recognised in respect of £658 million of UK tax losses and other temporary differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely.
No deferred tax asset was recognised in 2020 in respect of unrelieved foreign tax credits of £46 million as there were no expected profits against which the credits could be utilised. The formal closure of the branches in respect of which these credits arose means that the credits have now been extinguished.
No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in future periods. Of the asset not recognised, £41 million (2020: £41 million) relates to losses that will expire if not used within 20 years, and £7 million (2020: £48 million) relates to losses with no expiry date.
As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant taxable temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements.