Let's look in detail at the permanent differences between tax authority calculations and accounting numbers. Why do they come about? Well it's due to items attracting a different tax rate? A good example of this are non-deductible expenses such as staff entertainment. Whereas normal expenses would receive tax relief at your marginal tax rate, maybe 25 or 30%, a non-deductible does not allow you to receive any relief at all. The effect of this is to increase or decrease your overall costs. So for instance, in my tax calculation, if I'm not going to allow a particular expense and that's going to reduce my costs, it will increase my taxable profit and increase the tax I have to pay. So now it feels like we have a problem. In my tax calculation, the tax paid is going to be different to my accounting tax expense.

To get around this, the adjustment is made in the tax expense. The tax expense in our accounting numbers in our income statement just has to match that calculated by the tax authorities in the tax calculation.

This has an impact on the ETR or the effective tax rate and it will end up being different to the marginal tax rate.