There’s a great document here by Peter Kirstein telling the story of UCL’s involvement. First a picture (1973) and then some choice quotes:
In a 1970 improvement, the parallel interface was replaced by a serial one, and Hosts could be attached to IMPs by communications lines (via modems). In a further 1971 improvement, a terminal-handling module could be incorporated into the IMP; this made it a Terminal Interface Processor (TIP).
The IMP could handle up to four Hosts and four communications lines. However the back-plane of the Honeywell 516, later replaced by its cheaper Honeywell 316 brother, prevented four hosts and four communications lines being supported simultaneously. The TIP could handle up to 64 terminals directly. The cost of an IMP was around $50K, with that of a TIP nearer $70K. This represented around £800K, at today’s money, for a 64Kbyte system!
Everything proceeded normally, and the TIP was duly shipped in July 1973. Now an apparent disaster occurred - though it later turned into a most positive factor. When the TIP arrived at Heathrow, it was impounded for import duty and Value Added Tax (VAT). The duty I managed to avoid, since the equipment was “an instrument on loan”; however, there was no way of avoiding VAT. I was allowed to guarantee the sum due (my total £5000!), subject to appeal; only then was the TIP allowed into the country.
Finally, in 1976, the appeal was refused at a very high level… This led to a meeting with fairly senior Treasury officials. On being assured that the equipment was of interest only to the US DoD, not to other British ministries, a landmark ruling was made: “The equipment that you have imported, and any future equipment brought in under the same agreement, would be free of duty and VAT”. The importance of this ruling cannot be over-emphasised. It allowed the project to continue at UCL - free of most bureaucracy; only the benign oversight of my Governing Committee could interfere with the activities. Moreover, over the next ten years, many times different Government bodies considered trying to take over the UCL operation; they were immediately discouraged by the magnitude of the VAT and duty bill, which they would incur.
Partly because of our ARPA contracts, partly because of the fact that only we had the right to import equipment free of duty and VAT, and partly because we were the only group with the requisite expertise, UCL-CS continued to run the Internet - UK interconnection services until 1986.
A key factor in the early start of the project was that a small number of key people could make individual decisions and investments for a speculative project - in a way that was quite impractical for larger committees. Second was the lucky chance that Government intervention, in the form of the Customs and Excise, forced the project to remain in private hands in the UK; if it had been under a Government Agency, it would surely have been killed at some vital juncture in its first decade. As an example of the danger, I was requested by one Agency in the late 70s to stop working on the Internet Protocols and work exclusively on International Standard ones; needless to say, I refused.