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VOA Releases New UK Tax Proposals for Next Gen Fibre Optic Broadband Lines

Posted: 05th Jan, 2012 By: MarkJ
uk fibre optic broadband rolloutuk fibre optic broadband taxThe UK governments Valuation Office Agency (VOA) appears to have released significant new proposals for its controversial Next Generation Access (NGA) tax on fibre optic based broadband lines (Fibre Tax). The changes, which have been expected since December 2011 (here), could make it more affordable for smaller / altnets ISPs to deploy superfast internet services.

Many smaller ISPs have in the past claimed that the tax on new lines, which taxes the rateable value of the basic infrastructure, results in them having to pay more to lay new fibre optic lines than bigger operators ( BT and Virgin Media ). The big boys have traditionally been taxed based more on their profits than actual line activations.

Since early last year the Broadband Stakeholders Group (BSG), a UK government advisory think-tank on broadband access, has been working with the VOA and smaller ISPs on a consultation (here) that would hopefully help to address the perceived imbalance through an evidence based assessment. The new proposals appear to reflect that.
Updated VOA Valuation Considerations

Urban and sub-urban, mainly residential, NGA networks – the first two thirds

As NGA will be mainly the replacement of existing copper infrastructure, the VO considers that the level of value for residential NGA connections in urban and sub-urban areas (the first two thirds) will be similar to the rate per home passed adopted for cable TV access networks, the nearest comparable network currently offering broadband services. The additional value generated by the increased Broadband capacity will be initially offset by the high investment costs and pioneering nature of NGA.

The VO will therefore benchmark NGA residential connections in the first two thirds on a similar basis to that adopted for the Cable TV assessments for the duration of the 2010 rating lists. However, the RV will be grossed up to a “Rateable Value (RV) per end user” rather than “RV per home passed basis”.

NGA in the final third

The VOA has been working closely with the [BSG] in order to develop a new valuation model for NGA networks in the final third (mainly rural areas) where public subsidies are required for the capital expenditure. These areas are defined as “white areas” for State Aid purposes The BSG has been collating information from the industry in order to inform the VO’s valuation process.

A receipts and expenditure based valuation model has been developed by the BSG with input from the VOA and industry over the past 12 months. The valuation model has been run to produce a scale of rateable values per connection that will be applied to the NGA final third networks.

The factual data of the individual NGA final third networks will inform the choice of the “Rateable Value (RV) per end user selected from the scale, with consideration being given to the high capital cost, low potential returns and pioneering nature of the developments. That scale is set out below and extends from £13 to £2 per connection.
The related Rating Manual page appears to have been updated on 4th January 2012, although the VOA hasn't mentioned this in its news and the document is quite hard to read (blame our complicated tax industry for that). This makes it difficult to summarise, although most of it is based on their original January 2011 proposal (linked earlier).

Ian Grant's Br0kenTeleph0n3 has also picked up on the fact that the changes might only apply "where public subsidies are required" (not yet confirmed), which is a reference to funding from the Broadband Delivery UK (BDUK) office and EU sources etc. One problem with this, if implemented, would be that many such operators have since pulled out of / been excluded from BDUK's scheme (examples).

At this stage the changes are still just proposals and could well change before they're finalised. The BSG's supplied evidence base will be key in any outcome. After that the VOA will be required to consult the industry on its findings and we don't yet know how long that will take. We hope to post updates to this as we learn more.
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