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Home > Blogs > Anthony Harrington > Certain as death and taxes

Certain as death and taxes

Finance Blogger: Anthony Harrington Anthony Harrington

Every business that is not operating in some kind of tax-free zone knows that it is going to have to pay business rates on its business premises. This is just an accepted part of doing business. It doesn’t matter if your business premises are in a factory or an empty warehouse. The property will have a ratable value and you will pay tax on it.

However, there are business premises and then there are networks, which are not exactly premises, but which are the property of broadband network providers and which look to Her Majesty’s Revenue and Customs very much like the network provider’s equivalent of a factory.

Unsurprisingly, therefore, though a broadband network is not as easy to rate as a factory, HMRC have come up with a way of generating a number which represents the business ratable value of a broadband network. The formula HMRC uses, according to Ian Grant, writing in the November 3–9 edition of the technology journal Computer Weekly, is to estimate what the network provider could generate by way of income if they leased the network to a third party, and then to charge the network owner 48.5 pence in the pound on that value. Neat, don’t you think?

Of course, taxing everything in sight can seem counterproductive, particularly when the Government, with its other hand, as it were, is desperately trying to get Digital Britain up and running. The basic thrust of the Government’s Digital Britain policy is to try to get at least 2Mbps internet connectivity to every home and office in Britain, no matter how rural or remote said home might be. One big obstacle to achieving this though is that extending broadband networks to thinly populated rural areas is not a profitable enterprise, particularly when the operator is being taxed for building an extensive network. (There’s a company trying to build out a network to rural Britain, great, let’s increase its costs…)

Now here is a thought. The UK and Ireland are the only two European countries that tax telecommunications networks. The other European governments take the view that by not taxing telecommunications networks, they are lowering the cost of broadband—since network operators pass on business rate costs to subscribers in the form of increased charges. Lowering the cost of broadband provision stimulates take up. Many individuals and businesses who get online start to do business online and both e-commerce and bricks-and-mortar businesses flourish as a result. That results in more taxes for the government.

However, it seems that HMRC takes the view that a bird in the hand is worth two or three in the bush. Not only is it taxing broadband networks, the HMRC Valuation Office Agency, which is tasked with assigning ratable values to all sorts of things, is now studiously working out ways of taxing wireless networks. These really are the network of last resort for many small communities, who have set up their own wireless networks. That makes them network operators and so liable for tax.

It also threatens a number of smaller internet service providers operating wireless networks on wafer thin margins. But as HMRC notes, taxes are taxes, and networks are business property and subject to tax, until someone in Government in Britain and Ireland says differently. Just another lesson, really, in the importance of business and finance maintaining a constant and robust dialogue with government…

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Tags: broadband , tax , telecoms , UK
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