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[Bowdon]

https://www.ispreview.co.uk/index.php/2019/01/no-more-gov-eis-tax-relief-for-community-benefit-broadband-isps.html

A new ruling by HMRC, which appears to say that UK broadband ISPs acting as a Community Benefit Societies (CBS) to build their own local networks can no longer make use of tax breaks under the Enterprise Investment Scheme (EIS), could have serious repercussions for “full fibre” projects in rural areas.

The situation first came to our attention last year after the well-known and widely respected B4RN project, which since 2012 has been busy running a community built and funded 1Gbps Fibre-to-the-Home (FTTH) broadband network to rural premises in several counties, stopped processing new EIS1 forms for investments made into the ISP.

B4RN’s project has been a huge success, not least due to the way in which they’ve encouraged volunteers in each area to help build the network (usually in exchange for shares instead of cash). The model relies on local landowners (e.g. farmers) being generous and agreeing to waive their right to payment under a wayleave (access) agreement, which enables the fibre to be cheaply dug through their land.

At the last count well over 5,000 connections had been made to the network and their approach has been copied by a growing number of other community FTTH builds across the UK. As part of this effort B4RN have also been a member of the Government’s EIS scheme since 2011, which offers tax breaks to individual investors who buy new shares in the company.

Anybody who invests in B4RN (usually community members) understands that the operator is all about encouraging communities to help build their own network. This in turn helps to make an otherwise hugely expensive process much more viable and that means fewer areas requiring state aid in the future. However their approach has now come into conflict with the new Finance Act 2018, which introduced some changes to the EIS scheme.

    B4RN’s Community Focus

    As a community benefit society B4RN must operate for the benefit of its defined community rather than for the benefit of its members and shareholders. B4RN can pay interest on its shares but only at a level necessary to attract and maintain the investment needed to fund the network construction and operation. Any surplus funds must be used to benefit the community and not be distributed to shareholders.

    Barry Forde, CEO of B4RN, told ISPreview.co.uk:

    “The big thing about it is that they are now saying that Community Benefit Societies (CBS) don’t comply with the rules around trading which they define as having to make a cash profit, instead aiming to benefit the community, so not eligible for EIS tax relief.

    As you know there are a load of CBSs setup or being setup to do the rural broadband stuff, similar to B4RN but in a much earlier phase where EIS eligibility is very much more important. It’s not really much of an issue for B4RN now as we would have hit the upper limits over the next year anyway so were factoring no EIS into our medium term plans. But for start-ups it could be a killer.

    I really don’t think HMG has thought this one out. For the full fibre everywhere ambition to reach the last few percent community involvement is going to have to play a major part. If landowners are going to agree to laying ducts across their fields and waiving any wayleave charges they have to be convinced it’s a community project and no one is going to make any money.

    The HMRC ruling means that this structure cannot be used if EIS is needed (and 30% tax relief is a big incentive). But if groups setup as anything that meets HMRC’s rules for profitability they wont get landowners support. So where we go from here is anyone’s guess.”

[waltergmw]

Naturally I agree with Prof Barry Forde's sentiments
Thankfully B4SH, being a separate limited Society, have already obtained advance assurance for the similar HMRC SITR scheme.