UK MPs Hold Out Hope of VOA Business Rates and Fibre Tax Review

The Business, Innovation and Skills Committee has called for a “wholesale review” of business rates, which are typically set by the Government’s Valuation Office Agency (VOA). In particular one of the recommendations could have a significant impact upon the taxation of NGA / fibre optic broadband networks, which might level the playing field between ISPs.

Smaller altnet ISPs, specifically those that want to build their own ultrafast fibre optic broadband infrastructure in rural areas, have often claimed that the VOA’s “Fibre Tax” treats them unfairly and effectively forces them to pay more for their cable deployments than big fixed line Next Generation Access (NGA) providers like BT or Virgin Media.

In particular BT pay tax on their profits (arrears), while smaller ISPs pay tax as soon as the fibre optic cable becomes active (lit) and ignores whether or not the operator actually makes any money from it. Smaller providers see this as unfair but past calls for change, the odd court case and even a 2009 pledge by the Conservative Party (now in government) to review the situation have come and gone without any major shift. The VOA are now looking to tax wireless broadband networks too, although they claim it’s more of a “clarification” (here).

The latest BIS Committee report has once again held out the hope of a significant change after it recommended that any “wholesale review” should go beyond the administration of business rates and examine whether retail taxes need to be “based on sales rather than the rateable value of a property“. But if extended to ISPs this could, in theory, result in smaller providers being taxed in a similar way to BT.

Adrian Bailey MP, Chair of the BIS Committee, said:

“British retail is a global success story. Employing around 3 million people, it is the largest private sector employer in the UK. But its traditional home – the High Street – is struggling under a system of business rates that comprises one of the highest forms of local property tax in the European Union.

Amongst the many challenges they face, business rates are the single biggest threat to the survival of retail businesses on the High Street. Since the system was created the retail environment has changed beyond all recognition. A system of business taxation based on physical property is simply no longer appropriate in an increasingly online retail world.

The Government’s consultation on the administration of business rates at least acknowledges that change is needed. But this is a time for wholesale review and fundamental reform, not for tinkering around the edges. Business rates are not fit for purpose and minor administrative changes will not alter that.”

Admittedly the above calls for a review tend to focus predominantly on the “High Street”, although the report itself points to a much more extensive look at the overall structure of how business rates are handled. So it’s potentially good news, albeit not strictly a new idea.

Last year the VOA revealed, as part of the Government’s wider consultation, that it too was investigating some proposed changes for their next fibre tax rate card in 2015 (here) and one of these involved taxing smaller ISPs in the same way as bigger ones. On top of that they were also investigating whether rural areas should pay less than urban ones.

But for now no significant change has been announced and the latest BIS Committee report is merely designed to fuel the debate. The Government will give its response to the committee in due course (May 2014 or earlier), although they do not have to adopt the recommendations.

Funnily enough the last time we saw this much talk about business rates was before the 2010 General Election, when promises were made but not much happened, and surprise.. surprise.. 2015 is just around the corner. Put your sceptical hats on.. again. The VOA has historically steamrolled its way through such periods without change.