Courts shares slide on tax bill dispute

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The Independent Online

Shares in Courts, the troubled furniture retailer, fell 7.4 per cent yesterday after the company was forced to put out a statement concerning a disputed £44m tax bill.

Shares in Courts, the troubled furniture retailer, fell 7.4 per cent yesterday after the company was forced to put out a statement concerning a disputed £44m tax bill.

The statement was forced on the company after an interim decision emerged on Monday from the London Tribunal Centre, which hears tax disputes. It prompted a number of brokers to issue research notes yesterday, including Numis, Courts' house broker.

The case was first brought in 2002 by HM Customs & Excise which has demanded unpaid VAT from the company arising from the sale of guarantees.

Courts said some of the Tribunal's findings were "favourable and others are considered unfavourable". It said the next stage would be a further hearing and it was too early to judge the possible financial implications of the preliminary findings.

However, the company has been given the all-clear on guarantees sold since 2002, which means the £44m contingent liability reported in relation to the case in its latest annual report and accounts is set to fall. By how much is not yet known.

The case concerns the practice of "value shifting". Instead of selling an item of furniture at, say, £100 customers can buy a five-year insurance plan for £19 to cover structural defects and Courts simultaneously discounts the furniture by the same amount. Most of the £19 is returned to Courts as commission from the insurer, which is exempt from VAT, the tax being paid only on the balance of £81. Customs & Excise is claiming VAT should be paid on the whole amount.

The case hinges on whether Courts can prove customers knew they were buying an insurance policy separate from their furniture purchase. Iain McDonald, at Numis, said: "If Courts can prove this, then the decision could go in their favour."

Courts is also fighting the case an another front. It may be able to persuade the Tribunal that the tax assessments at the centre of the row are out of time.

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