Ofcom has published its consultation on the fees and penalties regime for online safety. The Online Safety Act ("OSA") requires providers of regulated services to pay fees unless exempted by Ofcom under section 83(6).
The overarching objective of the fees regime is set out in s84 of the OSA – namely to ensure that Ofcom recovers (but does not exceed) the costs of exercising its online safety functions. Ofcom must demonstrate that these fees are justifiable and proportionate and that the relationship between the cost of the exercise of those functions and amounts of fees are transparent.
There are a number of complexities which are likely to arise in administering the fees and penalties regime which require careful thought including:
- Attribution of Revenue: Difficulties in distinguishing between revenue attributable to regulated services and other revenue streams.
- De-duplication of revenue: Challenges for businesses operating across multiple jurisdictions in avoiding double-counting of revenue.
- Impact on Global Providers: The regime may disproportionately affect global service providers with significant international operations.
- Administrative burden: Providers will need to ensure staff are trained in the mechanics of the calculations to ensure compliance.
The challenge for Ofcom with the proposals is likely to be the balance between the inclusivity and complexity of the scheme. A higher threshold for QWR (defined below) will favour administrative simplicity and reduce the burden on smaller providers whereas a lower threshold will lead to a broader contribution base but increases the burden on SMEs and administrative complexity.
Key Takeaways
There are some key points in the consultation which merit early attention by providers:
- Consultation Deadline: Responses to the consultation must be submitted by 5pm 9 January 2025 (see below for link).
- Qualifying Worldwide Revenue ("QWR"): the proposed threshold for QWR is £250 million, meaning only providers with QWR of £250 million or more will be subject to fees.
- Fee Estimate: Ofcom expects, on the information currently available to it, that the charge is likely to be in the region of 0.02% of QWR (approximately £50,000).
- Estimated Date for invoices: Ofcom is expecting to issue invoices to providers who are liable to pay fees for the 26/27 financial year in Q3 of 2026. Providers should account for these fees in their future budgets if they meet the QWR threshold.
- Group Revenue: If a provider offers multiple regulated services or is part of a group, all revenue from those services will be included in the QWR calculation.
- Joint and several liability for fines: Where Ofcom finds a provider and one or more of its group undertakings liable for breaches under the Act, the QWR is all revenue for all members of the group (i.e. not just that which is related to the regulated service).
Summary of consultation
The definition and threshold of Qualifying Worldwide Revenue (QWR)
The proposal is for the threshold to be £250 million, potentially requiring between 20 and 40 providers to pay fees. To reach this figure, the consultation outlines that Ofcom sent requests for information to 30 companies for data about revenue for financial years ending in 2012, 2022 and 2023.
Key Points
- Worldwide Revenue: The proposal is that it will be worldwide revenue regardless of whether it is attributable to the use of the service in the UK.
- Fees & Penalties: The definition will apply to the fees regime and the maximum penalty cap for non-compliance under the Act.
- Universal Definition: The same QWR threshold will apply across all service types, with no differentiated thresholds for different categories of services.
Draft Regulations
Annex 9 sets out the draft regulations in relation to QWR. In summary the regulations propose that:
For both fees and penalties:
- Attribution: Revenue related to user interactions with the service, including advertising and goods/services sales will count towards the QWR.
- Revenue: Includes revenue generated from advertising and the supply of goods and services. Where is it not possible to disaggregate revenue between qualifying and non-qualifying, it will be apportioned on a just and reasonable basis.
- Currency: Conversion will be into sterling applying, where applicable, a just and reasonable exchange rate.
- Qualifying Period: This is the second calendar year preceding the one within which the charging year begins e.g. 1 January to 31 December 2024 would be the qualifying period for charging year 2026/27.
- Multiple Regulated Services: If a provider has two or more regulated services or is part of a group, QWR is reached by working out the revenue for each service and adding them together.
In relation to penalties under the Act:
- If a provider is part of a group and they are found to be jointly and severally liable for the breach, the QWR includes all of the revenue of all of the members of the group.
Exemption from the fees regime
The proposal is that providers of regulated services where the QWR is £250m or more but whose UK referable revenue is less than £10m, will be exempt under the Act. Ofcom does not consider that any further exemptions, for example for charities, should be considered at this stage.
Approach to the Statement of Charging Principles;
Ofcom is required to issue a Statement of Charging Principles (SoCP), which will include, amongst other things, details relating to the computational model used to calculate fees payable. The proposals are:
- Single Percentage Fee: On the basis of the information currently available to it, this is likely to be be in the region of 0.02% (approximately £50,000). It estimates that it should not exceed 0.05%.
- No differentiation between services: The consultation considers, but rejects, a tiered fee structure based on regulatory effort or service risk.
Looking ahead, there will be a later consultation on the Statement of Charging Principles.
Notification Regulations
The consultation also seeks views on the draft Manner of Notification regulations which specify how providers must submit QWR notifications and the required details:
- Secure Portal: Notifications will need to be made via Ofcom's secure services portal (or equivalent secure method).
- Declaration: The QWR return must be verified by a senior manager or appropriate individual who is able to ensure the accuracy and completeness of the submission.
- First Fee-paying Year: Where this is a notification for the Provider's first fee-paying year, the provider must also include a statement confirming that fact in the form set out in Annex 11.2.
Impact Assessments
Part 5 sets out the impact assessment of the proposals including on small, medium and large businesses. The assessment recognises that while larger providers are more likely to bear the costs, they are also best positioned to absorb them and implement necessary administrative structures.
Next Steps
If you would like to respond to the consultation, the link setting out how to do so can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
