Homestyle faces £23m VAT bill

Homestyle may have to pay an extra £23m in sales taxes, the furniture and textiles retailing companysaid yesterday, sending its shares tumbling 26 per cent to 195p.

Homestyle may have to pay an extra £23m in sales taxes, the furniture and textiles retailing companysaid yesterday, sending its shares tumbling 26 per cent to 195p.

Customs and Excise has challenged how much tax the company paid on warranties, or extended guarantees sold with its goods, between December 1999 and April 2001. As a result, its total liability for unpaid value-added tax could be £23.2m, excluding interest and penalties.

Homestyle, which vowed to fight the decision, also said like-for-like sales rose 2 per cent in the eight weeks to 29 October and that it expected to meet full-year objectives, although economic conditions were growing more uncertain.

If paid, the charge would gobble up a significant chunk of Homestyle's profits, which were £36m before taxes, exceptional items and goodwill in the year ended 2 March.

Customs has also challenged the way rival furniture retailer Courts paid taxes on its warranties. Its potential exposure is also about £23m.

Homestyle promised not to take the decision lying down. "The company has appealed the assessments and intends to contest them vigorously," it said. "At this early stage, the directors are unable to estimate the outcome."

Analysts frowned on the news. "The Customs challenge is obviously a sore spot, creating negative sentiment on the stock which we believe is likely to hang over the company for some time to come," analysts at Seymour Pierce wrote.

The brokerage lowered its profit estimates for Homestyle and cut its recommendation to "hold" from "buy".