The fashion retail and financial services group N Brown looks to have been left with a £9 million tax bill after losing a long-running dispute with HMRC.
The group, which owns the fashion brands Simply B and Jacamo, has been arguing that its marketing activities relate primarily to the sale of goods and should therefore be VAT standard-rated rather than VAT exempt.
However, the judge in a tribunal court case considering the matter has indicated in a draft decision their view that N Brown’s marketing activities ought to be viewed for tax purposes as relating both to the sale of goods and to the promotion of financial services.
If the draft decision holds then the group will be set to see a notable decrease in the amounts of VAT it can claim back and an increase in the amounts deemed non-recoverable.
A statement on the matter given by N Brown after it was sent a draft version of the tribunal’s decision said it was “disappointed by the current outcome” and is “considering its position with respect to an appeal”.
The company listed ‘VAT debtor’ as a £43.8 million asset in its financial reports published in relation to its most recent full year period.
A series of legal processes have been undertaken this year by N Brown representatives with the aim being to see that amount of money recovered in full from HMRC but that now looks unlikely to be possible.
“While the financial implications of this ruling for N Brown remain uncertain pending its ultimate outcome, the group expects that irrecoverable VAT on its marketing costs will increase by between £6m to £9m per annum on a full-year basis from FY20, with a proportionately lower impact anticipated for FY19,” official statements given by N Brown explain.
N Brown is based in Manchester and primarily sells clothing, footwear and homeware via its JD Williams, Jacamo and Simply Be businesses.
However, the group’s website describes its financial services arm as being “an important part of our overall proposition”.