DFS in line for pounds 10m from ruling on VAT

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The Independent Online
Sir Graham Kirkham, founding chairman of Doncaster-based retailer DFS Furniture and one of Britain's richest men, could be a big beneficiary from last week's landmark court ruling on value-added tax.

Brokers say DFS may be owed up to pounds 10m following the Court of Appeal ruling that Customs and Excise had been wrong in charging VAT on "interest- free" credit since the tax was introduced in 1973.

DFS has run such deals for at least 10 years, far longer than electrical retailers such as Dixons or the Kingfisher-owned Comet, who also stand to profit from a windfall tax rebate.

"If DFS can prove it sold a thousand three-piece suites on interest-free credit in the early days of its 25-year history it stands to make a large sum of money," one broker said.

Although it is not clear that DFS - or any other company - has kept records going back that far, analysts said a one-off gain would probably be distributed to investors in the form of a special dividend.

In that case, Sir Graham could be more than pounds 3m better off. He remains the largest shareholder in DFS after netting pounds 74m last year when he cut his stake from 51 per cent to 30 per cent.

Even a smaller VAT rebate of few million pounds would still be a substantial bonus for DFS, which last week reported a 16 per cent rise in pre-tax profits to pounds 15m.

Ironically, Sir Graham hit the headlines a year ago when he bailed out the Conservative Party with a pounds 4m interest-free loan.

Apart from furniture and electrical retailers, car dealers and contract- hire firms such as Lex Service are also seen as potential winners from the ruling, which is subject to an appeal by Customs in the House of Lords.

However, companies were reluctant to say to what extent they might benefit from the surprise judgment, or how a rebate would be distributed between shareholders and customers.

"Companies are coy about building up hopes only to see them dashed," said Panmure Gordon's Harry Phillips. Brokers also dismissed talk that Dixons could benefit to the tune of pounds 60m, though Sir Stanley Kalms, its chairman, believes a refund would be worth millions and result in price cuts for consumers. "It will affect future prices. If we don't have to pay VAT in the future, of course prices will come down. It will be a benefit that will be passed on," he told BBC Radio.

Other retailers played down the impact of the ruling. MFI Furniture said it only very rarely offers interest-free credit, while Courts, another furniture retailer, would not be a significant gainer because it has only recently begun to employ outside credit providers.

Department store operator House of Fraser said the majority of its sales were derived from apparel, accessories and other soft goods that are not subject to interest-free credit offers.

The British Retail Consortium, a trade body, estimates that refunds on overpaid VAT over the last five years would be about pounds 34m - way below initial reports of up to pounds 5bn accumulated over the last 23 years.

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