161 Vodafone Group Plc Annual Report 2026
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In respect of both the VodafoneThree and Group UK tax group’s deferred tax assets, future changes in tax law or in the structure of the Group could have a significant impact on the availability and timing of utilisation of UK capital allowances and other deferred tax assets. The Group has unrecognised capital tax losses of €29,087 million (2025: €29,762 million) arising in a number of Group UK entities. The variance compared to 2025 is due to foreign exchange. These losses may be carried forward indefinitely but can only be utilised against future chargeable capital gains. In assessing the recoverability of these losses, the Group has considered the expected availability of future taxable capital gains. Due to the application of the UK Substantial Shareholding Exemption, which exempts from tax the majority of gains on disposals of qualifying shareholdings, the Group does not consider it probable that sufficient taxable capital gains will arise against which these losses can be utilised. Accordingly, no deferred tax asset has been recognised in respect of the capital losses, consistent with the treatment in the prior year. Across both UK tax groups there is an unrecognised brought forward Corporate interest restriction of €2,040 million (2025: €1,916 million), as the Group does not forecast being able to utilise this. Deferred tax assets on losses in Germany The Group has a recognised deferred tax asset of €1,441 million (2025: €1,950 million) in Germany in respect of losses arising primarily on the write-down of investments in Germany in 2000. The losses relate to German corporate tax and trade tax liabilities and do not expire. The Group concludes that it is probable that the German business will generate sufficient taxable profits in the future against which these losses will be utilised. The Group has reviewed the latest five-year forecasts for the German business, which reflect the inherent risks of operating in the telecommunications sector. The Group expects to fully utilise the trade tax losses within 4-5 years, and corporate tax losses within 31-32 years. The reduction in the deferred tax asset in the period primarily reflects the enacted change in German corporate income tax rates. On 14 July 2025, the German Government enacted a 5% reduction in the corporate income tax rate, to be implemented on a staggered basis at 1% per annum from 2028 to 2032. The enacted rate change resulted in a €305 million charge to remeasure the German net deferred tax assets. Unremitted earnings No deferred tax liability has been recognised in respect of a further €33,631 million (2025: €39,199 million) of unremitted earnings of subsidiaries because the Group is able to control the timing of the reversal of the temporary difference, and it is probable that such differences will not reverse in the foreseeable future. It is not practicable to estimate the amount of unrecognised deferred tax liabilities in respect of these unremitted earnings. Pillar Two - Global Minimum Tax The BEPS Pillar Two Minimum Tax legislation was enacted in July 2023 in the UK with effect from financial years commencing on or after 1 January 2024. The Group has applied the temporary exception under IAS 12 in relation to the accounting for deferred taxes arising from the implementation of the Pillar Two rules. The FY26 tax charge includes a current tax charge of €9 million (2025: €7 million) relating to Pillar 2 income taxes.
6. Taxation (continued) For the periods beyond the five-year forecast the Group has considered the level of profits assumed in the terminal period, taking into account the expected future profitability of the two businesses, and the forecast levels of external debt. Based on the current forecasts, the deferred tax asset is expected to be recovered over the next 46 years (2026 half-year: 30 years). The recovery period has increased compared to the 2026 half-year results, primarily due to the reduction in the rate of deductible capital allowances for plant and machinery from 18% to 14% per annum from 1 April 2026 following the November 2025 UK Budget as well as the finalisation of the purchase price allocation (including accounting policy alignment) for Three UK which resulted in revisions to forecast taxable profit at the legal entity level. An increase or decrease in the net taxable income in the tax group in each year of approximately 5%-10% would change the period over which the deferred tax asset will be fully utilised by 1-2 years either way. Based on the above factors the Group concludes that it is probable that the VodafoneThree tax group will continue to generate taxable profits in the future against which it will utilise capital allowances and other deferred tax assets. Three UK has accumulated unrecognised tax losses and capital allowances of €7,615 million as the Group does not consider it probable that they will be utilised. A significant portion of the losses can only be offset against Three UK’s own future taxable profits, and for the remaining losses, future taxable profits are expected to be sheltered by recognised capital allowances, which are anticipated to be claimed in priority. Vodafone Group UK The Vodafone ‘Group UK’ tax group has a recognised UK deferred tax asset of €nil million (2025: €2,566 million, which included Vodafone UK, now part of the VodafoneThree tax group, as described above). The Group UK tax group comprises the Group’s UK financing, holding and group service companies and holds significant tax assets, primarily arising from excess capital allowances available to be claimed on a reducing balance basis. In assessing recoverability of deferred tax assets, the Group has reviewed the latest five-year forecasts for the Group UK tax group, which reflect the inherent risks of operating in the telecommunications sector. For periods beyond the five-year forecast, the Group has considered the level of profits assumed in the terminal period, taking into account forecast level of external debt and derivatives and expected future profitability of the business. Based on this assessment, the Group does not consider there to be sufficient taxable profits that can be reliably forecast, beyond those arising from the reversal of existing deferred tax liabilities, to support recognition of additional deferred tax assets. This conclusion is driven primarily by the volatility of taxable income and deductible losses arising from treasury activities, where relatively small changes in the Group’s bond and derivative portfolio can result in significant movements in forecast long-term taxable profits within the Group UK tax group. Accordingly, the Group has written down the €358 million net deferred tax asset in respect of fixed assets within the Group UK tax group. €437 million of deferred tax assets remain supported by the reversal of deferred tax liabilities. As a consequence of de-recognising this deferred tax asset in the period, the Group has €1,432 million (2025: nil) of unrecognised deductible temporary differences.
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