FINANCIAL HIGHLIGHTS CHAIRMAN'S STATEMENT CHIEF EXECUTIVE'S STATEMENT BROADENING OUR INTERNATIONAL PROFILE GROUP FINANCE DIRECTOR'S REPORT BOARD OF DIRECTORS CORPORATE CITIZENSHIP CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Accounting policies 2 Foreign currencies 3 Segment information 4 Operating profit adjusting items 5 Income tax expense 6 Minority interests - Income statement 7 Earnings and earnings per share 8 Investment income (net of investment losses) 9 Banking interest and similar income 10 Fee and commission income, and income from service activities 11 Finance costs (including interest and similar expenses) 12 Banking interest expense 13 Fees and commission expense, and other acquisition costs 14 Other operating and administrative expenses 15 Acquisition of subsidiaries 16 Goodwill and other intangible assets 17 Investments in associated undertakings 18 Investment property 19 Property, plant and equipment 20 Operating lease arrangements 21 Finance lease arrangements 22 Deferred tax assets and liabilities 23 Insurance contract provisions 24 Deferred acquisition costs 25 Loans, receivables and advances 26 Derivative financial instruments - assets and liabilities 27 Financial assets fair valued through income statement 28 Other financial assets 29 Short-term securities 30 Other assets 31 Assets and liabilities held-for-sale 32 Financial liabilities fair valued through income statement 33 Borrowed funds 34 Provisions 35 Deferred revenue 36 Amounts owed to depositors 37 Other liabilities 38 Equity 39 Minority interests - balance sheet 40 Post balance sheet events 41 Post employment benefits 42 Share-based payments 43 Dividends 44 Contingent liabilities 45 Commitments 46 Related parties 47 Principal subsidiaries and Group enterprises 48 Financial risk 49 Insurance risk

COMPANY FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS EUROPEAN EMBEDDED VALUE SUPPLEMENTARY INFORMATION NOTICE OF ANNUAL GENERAL MEETING SHAREHOLDER INFORMATION

Notes to the consolidated financial statements

For the year ended 31 December 2006

22 Deferred tax assets and liabilities

Deferred income taxes are calculated on all temporary differences at the tax rate applicable to the jurisdiction in which the timing differences arise.

(i) Deferred tax assets
The movement on the deferred tax assets account is as follows:

						£m
	1 January 2006	Income state- ment (charge)/ credit	(Charged)/ credited to equity	Acqui- sition/ dis- posals of subsi- diaries	Foreign ex- change and other move- ments	31 December 2006
Insurance funds	186	(32)	-	-	(29)	125
Tax losses carried forward	241	138	-	2	(44)	337
Accelerated capital allowances	95	(44)	-	-	(9)	42
Available for sale securities	(4)	-	-	-	4	-
Other temporary differences	(60)	45	(8)	23	7	7
	458	107	(8)	25	(71)	511

						£m
	1 January 2005	Income state- ment (charge)/ credit	(Charged)/ credited to equity	Acquisition/ dis- posals of subsidiaries	Foreign ex- change and other move- ments	31 December 2005
Insurance funds	156	16	-	-	14	186
Tax losses carried forward	266	(25)	-	(5)	5	241
Accelerated capital allowances	1	14	-	-	80	95
Available for sale securities	(8)	-	-	-	4	(4)
Other temporary differences	25	(11)	-	5	(79)	(60)
	440	(6)	-	-	24	458

Deferred tax assets are recognised for tax losses carried forward only to the extent that realisation of the related tax benefit is probable. The amounts for which no deferred tax asset has been recognised comprise:

				£m
	31 December 2006		31 December 2005
	Gross amount	Tax	Gross amount	Tax
Unrelieved tax losses
Expiring within one year	39	2	65	3
Expiring in the second to fifth years inclusive	75	4	129	6
Expiring after five years	1,039	244	384	69
Accelerated capital allowances	25	19	36	11
Other timing differences	200	73	227	80
	1,378	342	841	169

(ii) Deferred tax liabilities
The movement on the deferred tax liabilities account is as follows:

						£m
	1 January 2006	Income state- ment charge/ (credit)	Charged/ (credited) to equity	Acqui- sition/ dis- posals of subsi- diaries	Foreign ex- change and other move- ments	31 December 2006
Accelerated tax depreciation	2	2	-	-	1	5
Deferred acquisition costs	302	63	15	-	(42)	338
Leasing	157	30	-	-	(14)	173
PVIF	-	(62)	-	375	(2)	311
Other acquired intangibles	-	(9)	-	119	(1)	109
Available for sale securities	18	13	(26)	-	(1)	4
Other temporary differences	132	274	(11)	99	(41)	453
	611	311	(22)	593	(100)	1,393

						£m
	1 January 2005	Income state- ment charge/ (credit)	Charged/ (credited) to equity	Acqui- sition/ dis- posals of subsidiaries	Foreign ex- change and other move- ments	31 December 2005
Accelerated tax depreciation	2	-	-	-	-	2
Deferred acquisition costs	169	61	46	-	26	302
Leasing	156	3	-	-	(2)	157
PVIF	-	-	-	-	-	-
Other acquired intangibles	-	-	-	-	-	-
Available for sale securities	84	9	(80)	-	5	18
Other temporary differences	(25)	99	-	7	51	132
	386	172	(34)	7	80	611

As the Group is able to control the reversal of temporary differences in respect of investments in subsidiaries, branches, associates and JVs and it is probable that these temporary differences will not reverse in the foreseeable future, there is no need to provide for the associated deferred tax liabilities. The aggregate amount of temporary differences on which further tax might be due if these temporary differences reversed would be in the region of £1.6 billion (2005: £1.9 billion).