| 2018
£m | 2017
£m |
| Current taxation – charge for the year | 27.4 | 28.1 |
| Current taxation – adjustments in respect of previous years | (0.4) | (6.3) |
| Deferred tax (see note 19) | 1.6 | (2.1) |
| 28.6 | 19.7 |
The Group uses a weighted average country tax rate rather than the UK tax rate for the reconciliation of the charge for the year to the profit before taxation per the consolidated income statement. The Group operates in several jurisdictions, many of which have a tax rate in excess of the UK tax rate. As such, a weighted average country tax rate is believed to provide the most meaningful information to the users of the financial statements. The appropriate tax rate for this comparison is 26.5% (2017: 30.1%). The reduction in the weighted average country tax rate is mainly a result of the reduction in the US tax rate following the passing of the Tax Cuts and Jobs Act in December 2017.
The charge for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:
| 2018
£m | 2017
£m |
| Profit before taxation | 132.2 | 117.0 |
| Tax at the weighted average country tax rate of 26.5% (2017: 30.1%) | 35.0 | 35.2 |
| Tax effect of expenses not deductible in determining taxable profit1 | 0.6 | 0.4 |
| Impact of recognition or derecognition of deferred tax balances | (0.9) | (1.4) |
| Tax effect of other adjustments in respect of previous years: | | |
| Current tax2 | (0.4) | (7.0) |
| Deferred tax2 | 0.2 | 4.3 |
| Effect of financing activities between jurisdictions3 | (7.9) | (8.5) |
| Impact of trade and minimum corporate taxes | 1.5 | 1.3 |
| Impact of US Tax Cuts and Jobs Act treated as an exceptional item4 | – | (6.4) |
| Effect of changes in statutory tax rates on deferred tax assets and liabilities | (0.1) | (0.1) |
| Other tax risk provision movements5 | 0.6 | 1.9 |
| Tax expense for the year | 28.6 | 19.7 |
Tax on items taken directly to equity is a credit of £0.7m (2017: £0.5m).
- Those costs in various juristictions not deductible in calculating taxable profits.
- 2018 prior year adjustments in current and deferred tax relate mainly to changes in assumptions and outcomes in UK and overseas tax positions, whilst the 2017 adjustments mainly related to changes in assumptions and outcomes in relation to overseas tax credits and other claims.
- The Group is externally financed by a mix of cash flows from operations and short-term borrowings. Internally, operating subsidiaries are predominantly financed via intercompany loans. The effect is net of provisions based on management's estimation of tax risk relating to the potential disallowance of interest. £2.2m of interest deductions were restricted in the US in 2018 following the passing of the Tax Cuts and Jobs Act in December 2017.
- Prior year net exceptional impact of the passing of the Tax Cuts and Jobs Act in the US in December 2017, made up of (i) £6.8m one-off tax gain resulting from a revaluation of the Group's US deferred tax liabilities, and (ii) £0.4m tax charge on accumulated overseas profits of US entities.
- Includes provisions for local tax risks and non-financing cross border transactions.
As part of the calculation of the tax charge, the Group recognises a number of tax risk provisions in respect of ongoing tax enquiries and in recognition of the multinational tax environment that Bodycote operates in where the nature of the tax positions that are taken is often complex and subject to change. Tax provisions totalling £16.1m were recognised at 31 December 2018 (2017: £17.5m). The provisions included are based on an assessment of a range of possible outcomes to determine reasonable estimates of the consequences of tax authority audits in the various tax jurisdictions in which the Group operates. Management judgement is exercised to determine the quantum of the tax risk provisions based on an understanding of the appropriate local tax legislation, taking into consideration the differences of interpretation that can arise on a wide variety of issues including the nature of ongoing tax audits and the experience from earlier enquiries.
Note 30 to the accounts refers to a contingent liability in respect of the European Commission state aid investigation into the Group financing exemption in the UK controlled foreign company rules.