Virgin Media 2007 Annual Report Download - page 130

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Income Taxes (Continued)
The U.K. enacted changes in tax legislation in July 2007 that will impact our future U.K. tax
position. These changes include a reduction in the rate of taxation from 30% to 28%. Accordingly the
deferred tax position set out above has been calculated at 28% for 2007 (2006 30%) to the extent that
it relates to U.K. deferred tax assets and liabilities.
A valuation allowance is recorded to reduce the deferred tax asset to an amount that is more
likely than not to be realized. To the extent that the portion of the valuation allowance that existed at
January 10, 2003 is reduced, the benefit would reduce excess reorganization value, then reduce other
intangible assets existing at that date, then be credited to paid in capital. The majority of the valuation
allowance relates to tax attributes that existed at January 10, 2003. In 2007, we recognized a tax benefit
of £2.2 million which resulted in a deferred tax expense and a reduction in reorganization value of this
amount (2006 £nil).
As discussed in note 1, we emerged from Chapter 11 bankruptcy on January 10, 2003. The
reorganization caused an ownership change pursuant to Internal Revenue Service Code Section 382.
Section 382 will limit our ability to utilize any remaining U.S. net operating loss carryforwards that
existed at January 10, 2003.
At December 31, 2007, we had net operating loss carryforwards for U.S. federal income tax
purposes of £237 million that expire between 2018 and 2026. As discussed in note 5, acquisitions that
took place in 2006 affected our share ownership. We are evaluating whether the application of
Section 382 may constitute an ownership change for U.S. federal income tax purposes. However, it is
not anticipated that an ownership change would significantly affect our ability to use these net
operating losses arising prior to that date. We have U.K. net operating loss carryforwards of £3.2 billion
that have no expiration date. Pursuant to U.K. law, these losses are only available to offset income of
the separate entity that generated the loss. A portion of the U.K. net operating loss carryforward
relates to dual resident companies, of which the U.S. net operating loss carryforward amount is
£1.1 billion that expire between 2010 and 2026. Section 382 may limit our ability to utilize these losses
for U.S. purposes. We also have U.K. capital loss carryforwards of £12.1 billion that have no expiration
date. However, we do not expect to realize any significant benefit from these capital losses, which can
only be used to the extent we generate U.K. taxable capital gain income in the future from assets held
by former NTL companies.
At December 31, 2007, we had fixed assets on which future U.K. tax deductions can be claimed of
£13.1 billion. With effect from April 1, 2008, the maximum amount that can be claimed in any one year
is 20% of the remaining balance, after additions, disposals and prior claims (previously 25%).
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