Virgin Media 2011 Annual Report Download - page 211

VIRGIN MEDIA INVESTMENT HOLDINGS LIMITED AND SUBSIDIARIES
VIRGIN MEDIA INVESTMENTS LIMITED AND SUBSIDIARIES
COMBINED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11—Income Taxes (continued)
The following table summarizes the movements in our deferred tax valuation allowance during the years
ended December 31, 2011, 2010 and 2009 (in millions):
Year ended December 31,
2011 2010 2009
Balance, January 1 .............................. £6,373.2 £6,607.6 £6,439.3
Effect of changes in U.K. tax rates ............. (473.5) (237.3) 0.0
Reduction of valuation allowance due to gain on
disposal of discontinued operations .......... 0.0 (33.6) 0.0
(Decrease) increase in valuation allowance due to
current year activity ....................... (63.9) 36.5 168.3
Balance, December 31 ........................... £5,835.8 £6,373.2 £6,607.6
The change in tax rates relates to a reduction in the UK corporate income tax rate from 28% in 2010, to 26%
with effect from 1 April 2011, and to 25% with effect from 1 April 2012. The deferred tax assets and liabilities
presented for 2011 reflect the 25% rate. Further rate changes have been announced that are expected to reduce
the UK corporate income tax rate in equal annual decrements of one percentage point to 23%, but these changes
have not yet been enacted.
A valuation allowance is recorded to reduce the deferred tax assets to an amount that is more likely than not
to be realized. To the extent that a portion of the valuation allowance is reduced, the benefit will be recognized as
a reduction of income tax expense.
At December 31, 2011, we had U.K. net operating loss carryforwards of £2.2 billion that have no expiration
date. Pursuant to U.K. law, these losses are only available to offset income of the legal entity that generated the
loss. A portion of the U.K. net operating loss carryforwards relates to dual resident companies, of which the U.S.
net operating loss carryforward amount is £477 million and expires between 2012 and 2028. Following the
completion of a Section 382 study during 2011, we revised downward our estimate of U.S. net operating loss
carryforwards available to these companies from £1.5 billion, which were severely limited under Section 382, to
£477 million, which are not subject to limitation under Section 382. The U.S. net operating loss carryforwards
that relate to dual resident companies are not included in the table above that presents significant components of
our deferred tax assets. 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 future U.K. taxable capital gain income from assets held by subsidiaries owned by
the group prior to the merger with Telewest in 2006.
At December 31, 2011, we had fixed assets on which future U.K. tax deductions can be claimed of £12.5
billion. The maximum amount that can be claimed in any one year is 20% of the remaining balance, after
additions, disposals and prior claims. This rate will fall to 18% with effect from 1 April 2012.
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