  The first reverberation lag from the vicinity of a supermassive black hole
was recently detected in the NLS1 galaxy 1H0707-495. We interpreted the lag as
being due to reflection from matter close to the black hole, within a few
gravitational radii of the event horizon (an inner reflector). It has since
been claimed by Miller et al that the lag can be produced by more distant
matter, at hundreds of gravitational radii (an outer reflector). Here, we
critically explore their interpretation of the lag. The detailed energy
dependence of the time lags between soft and hard energy bands is well modelled
by an inner reflector using our previously published spectral model. A contrary
claim by Miller et al was obtained by neglecting the blackbody component in the
soft band. Soft lags can be produced by a large-scale outer reflector if
several, implausible, conditions are met. An additional transfer function is
required in the soft band corresponding to a region that is physically close to
the continuum source, or lies close to our line of sight and subtends a small
solid angle at the source, challenging the production of the observed spectrum.
We show that the original inner reflector interpretation of reverberation very
close to the black hole provides a self-consistent and robust model which
explains the energy spectrum and timing properties, including the time delays,
power spectra and the shape of the coherence function. Several of these
properties are opposite to the predictions from a simple large-scale outer
reflection model.
