Accounting policies

Income tax expense represents the sum of current and deferred taxes.

Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible. The Group’s liability for current tax is calculated using tax rates and laws that have been enacted or substantively enacted by the reporting period date.

The Group recognises provisions for uncertain tax positions when the Group has a present obligation as a result of a past event and management judge that it is probable that there will be a future outflow of economic benefits from the Group to settle the obligation. Uncertain tax positions are assessed and measured on an basis within the jurisdictions that the Group operates either using management’s estimate of the most likely outcome where the issues are binary, or the expected value approach where the issues have a range of possible outcomes. The Group recognises interest on late paid taxes as part of financing costs, and, if applicable, classifies tax penalties as part of the income tax expense if the penalties are based on profits.

Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable temporary differences or taxable profits will be available against which deductible temporary differences can be utilised.

Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities (other than in a business combination), when the transaction affects neither the accounting profit nor the taxable profit and does not give rise to equal taxable and deductible temporary differences. Deferred tax liabilities are also not recognised to the extent they arise from the initial recognition of goodwill that is not deductible for tax.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting period date and adjusted to reflect changes in the Group’s assessment that sufficient taxable profits will be available to allow all the recognised asset to be recovered.

 

 

Deferred tax is calculated at the tax rates that are expected to apply in the periods when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the reporting period date. The Group does not discount deferred tax balances.

Tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they either relate to income taxes levied by the same taxation authority on either the same taxable entity or on different taxable entities which intend to settle the current tax assets and liabilities on a net basis.

Tax is charged or credited to the income statement, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the tax is recognised in other comprehensive income or in equity.

 

Tax charged/(credited) directly to other comprehensive income

 

Tax charged directly to equity

 

 

 

Factors affecting the tax expense in the year

The table below explains the differences between the expected tax expense, being the aggregate of the Group’s geographical split of profits multiplied by the relevant local tax rates and the Group’s total tax expense for each year.

 

Notes:

 

 

 

 

 

 

 

 

Deferred tax

The table below is an analysis of movements in the net deferred tax asset balance during the year.

 

Deferred tax assets and liabilities, before offset of balances within countries, are as follows:

 

Analysed in the balance sheet, after offset of balances within countries, as:

 

 

At 31 March 2025, analysed in the balance sheet, after offset of balances within countries, as:

 

Factors affecting the tax charge in future years

312 314

 

 

The tables below present the gross amount and expiry dates of losses available for carry forward for the year ended 31 March 2026 and the comparative year ended 31 March 2025.

 

 

The Group does not currently recognise deferred tax assets which are forecast to be used 60 years beyond the reporting period.

Deferred tax assets on losses in Luxembourg

Included in the table above are losses of 63,881 million (2025: 65,200 million) that have arisen in Luxembourg companies. A deferred tax asset of 15,248 million (2025: 15,563 million) has been recognised in respect of these losses, as the Group concluded it is probable that the Luxembourg entities will continue to generate taxable profits in the future against which the Group can utilise these losses. These tax losses principally arose from historical impairments, primarily following the acquisition of the Mannesmann Group in 2000. These losses also arose prior to the 2017 tax reform in Luxembourg and are available to carry forward indefinitely.

Losses incurred after the 2017 tax reform in Luxembourg expire after 17 years and can only be used after any losses on a basis. The Luxembourg companies have 15,958 million (2025: 15,958 million) of post-2017 losses, which will fully expire in 14 years. No deferred tax asset is recognised for these post-2017 losses on the basis that they are not forecast to be used prior to the expiry of their 17-year life.

The Luxembourg companies utilised 1,319 million of their losses in the current year, representing 2% of the recognised deferred tax asset.

The recovery of the deferred tax asset is expected to be driven by the recurring profits of the Luxembourg companies.

These recurring profits are derived from the Group’s internal financing, centralised procurement, and international roaming activities. These activities have consistently generated taxable profits of over 1 billion per annum throughout their existence. The Group has reviewed the latest five-year forecasts for the Luxembourg companies, including their ability and the Group’s intention to continue to generate income beyond this period.

The forecasts consider the impact of the current market conditions on the existing financing activities, including the current view of future interest rates, levels of intragroup financing, as well as the future profits generated from the procurement and roaming activities.

This assessment also included a review of the commercial structures supporting the profits generated from these activities and considered the factors, under the Group’s control, which could impact the ability of these activities to generate taxable profits. The Group has assessed that the current structure continues to be sustainable under the tax laws substantively enacted at the reporting period date and the Group’s intentions to keep these activities in Luxembourg remains unchanged.

Based on the current forecasts, 3,145 million (21%) (2025: 3,065 million, 20%) of the deferred tax asset is forecast to be used within the next 10 years, and 6,319 million (41%) (2025: 6,194 million, 40%) used within 20 years. The losses are projected to be fully utilised over the next years (2025: years).

The decrease in the recovery period compared to the prior year is principally a result of current year utilisation of the asset. An increase or decrease in the forecast income in Luxembourg in each year of would change the period over which the losses will be fully utilised by years either way. The Group uses different scenarios to forecast income to understand the impact that a change in interest rates or level of debt advanced by the Luxembourg companies could have on the recovery period of the losses.

Any future changes in tax law or the structure of the Group could have a significant effect on the use of the Luxembourg losses, including the period over which these losses can be utilised. On the basis that future changes in tax laws are unknown, the profit forecasts assume that existing tax laws continue.

In 2025, the Government of Luxembourg enacted a reduction in the corporate income tax rate of 1%, resulting in a 719 million write down of the Luxembourg deferred tax asset. This adjustment had no impact on cash tax. In 2026, the Government of Luxembourg has announced its intention to reduce the corporate income tax rate by a further 1%. If enacted, this would result in a further write down of the existing Luxembourg deferred tax asset of approximately 640 million, with no impact on or the utilisation period.

Based on the above factors the Group concludes that it is probable that the Luxembourg companies will continue to generate taxable profits in the future against which it will use these losses.

Deferred tax assets in the UK

The merger between Vodafone UK and Three UK, which completed on 31 May 2025 resulted in the formation of two separate UK tax groups: the VodafoneThree tax group, and the Group UK tax group.

VodafoneThree

The VodafoneThree tax group has a recognised UK deferred tax asset of 2,067 million (2025: nil due to the change in the tax groups referenced above).

This asset consists primarily of excess capital allowances available to be claimed on a reducing balance basis, relating to qualifying plant and machinery held by the Vodafone and Three UK operating companies. In assessing recoverability, the Group has reviewed the latest five-year forecasts for the VodafoneThree UK tax group which reflect the inherent risks of operating in the telecommunications sector.

 

 

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 would change the period over which the deferred tax asset will be fully utilised by 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 this deferred tax asset in the period, the Group has 1,432 million (2025: nil) of unrecognised deductible temporary differences.

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 years, and corporate tax losses within 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.