Note 13 — Income taxes

Loss before income tax expense is as follows (in thousands):

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The components of income tax expense are as follows (in thousands):

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As of December 31, 2021 and 2020 the tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities were as follows (in thousands):

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The valuation allowance is primarily related to deferred tax assets for operating loss and tax credit carry-forwards and temporary differences relating to share-based compensation expense. Deferred tax assets have been recognized without a valuation allowance to the extent supported by reversing taxable temporary differences. A valuation allowance has been provided over the remaining deferred tax assets, which management considered are not more likely than not of being realized after weighing all available positive and negative evidence including cumulative losses in recent years and projections of future taxable losses.

The movements in the deferred tax asset valuation allowance for the year ended December 31, 2021 and 2020 are as follows (thousands):

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The net change in valuation allowance of $50,045,000 for the year ended December 31, 2021 includes an increase of $50,046,000 which was recognized in net loss, and an increase of $1,512,000 which was recognized in Other comprehensive loss.

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Reconciliation of the U.K. statutory income tax rate to the Company's effective tax rate is as follows (in percentages):

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The Company is headquartered in the United Kingdom and has subsidiaries in the United Kingdom and the United States. The Company incurs tax losses in the United Kingdom. The U.K. corporate tax rate for the years ended December 31, 2021, 2020 and 2019 was 19% in each year. The Company’s subsidiary in the United States has generated taxable profits due to a service agreement between the Company’s subsidiaries in the United States and the United Kingdom. The U.S. federal corporate tax rate was 21% for the years ended December 31, 2021, 2020 and 2019, respectively.

The United Kingdom’s Finance Act 2021, which was enacted on June 10, 2021, maintained the corporation tax rate at 19% up until the year commencing April 1, 2023, at which point the rate will rise to 25%. As of December 31, 2021, the Company used a 25% and 21% tax rate in respect of the measurement of deferred taxes arising in the U.K. and the U.S., respectively, which reflects the currently enacted tax rates and the anticipated timing of the unwinding of the deferred tax balances. In respect of the measurement of deferred taxes arising in the U.K, the increase in the tax rate to be adopted by the Company from 19% in the year ended December 31, 2020 to 25% in the year ended December 31, 2023 has increased the net deferred tax asset and corresponding valuation allowance by $28,420,000. The effect of the change in tax rates on the Consolidated statement of operations is $nil, after consideration of the change in valuation allowance.

As of December 31, 2021, we do not have unremitted earnings in our U.S. subsidiary.

As of December 31, 2021, we had U.K. net operating losses of approximately $423,572,000, expenditure credit carryforwards of $762,000 and U.S. tax credit carryforwards of $8,316,000. Unsurrendered U.K. tax losses and tax credit carryforwards can be carried forward indefinitely to be offset against future taxable profits; however, this is restricted to an annual £5,000,000 allowance in each standalone company or group and above this allowance, there will be a 50% restriction in the profits that can be covered by losses brought forward. U.K. tax credit carryforwards can be carried forward indefinitely to be offset against future tax liabilities of the company. U.S. tax credit carryforwards can be carried forward for 20 years to be offset against future tax liabilities, subject to a minimum tax payment of 25% of the tax charge. The tax credit carryforwards expire between 2036 and 2041.

Our tax returns are under routine examination in the U.K. and U.S. tax jurisdictions. The scope of these examinations includes, but is not limited to, the review of our taxable presence in a jurisdiction, our deduction of certain items, our claims for research and development credits, our compliance with transfer pricing rules and regulations and the inclusion or exclusion of amounts from our tax returns as filed. The Company is no longer subject to examinations by tax authorities for the tax years 2014 and prior in the United Kingdom. However, U.K. net operating losses from the tax years 2014 and prior would be subject to examination if and when used in a future tax return to offset taxable

income. Our U.K. income tax returns have been accepted by Her Majesty’s Revenue and Customs through the period ended December 31, 2016. The Company is subject to examinations by taxing authorities in the United States for all tax years 2014 through 2021. Our U.S. federal income tax return for the year ended June 30, 2014 and December 31, 2016 were audited by the U.S. Internal Revenue Service and resulted in no changes. We are also subject to audits by U.S. state taxing authorities where we have operations.

Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of uncertainties in the tax law. As of December 31, 2021 and December 31, 2020, the Company had no unrecognized tax benefits.