November 13, 2018 / 8:41 AM / a month ago

N Brown sees higher tax on marketing costs

(Reuters) - Plus-sized fashion retailer N Brown (BWNG.L) said on Tuesday its tax bill would rise in the next two years as a result of a long-running dispute with the British government over tax recovery.

The company’s shares slipped 4 percent after it said that tax on marketing costs would rise between 6 million pounds and 9 million pounds annually from its financial year 2020.

N Brown has argued that it should be reimbursed for the £43.8 million it has paid with regards to Value Added Tax on marketing expenditure relating to sale of goods. But tax authorities maintain that the VAT relates to both sale of goods and financial services.

In a draft ruling, a judge agreed with the government’s stand, saying that in marketing goods, N Brown was also marketing financial services even if there was no reference to this in its marketing materials.

“The draft ruling has mixed implications for N Brown and we are disappointed by the current outcome,” the plus sized fashion retailer said in a statement.

N Brown, which is focussed on three core brands JD Williams, Simply Be and Jacamo, said it was considering its position with respect to an appeal on the decision.

Analysts at Jefferies cut their 2020 pretax estimates by about 11 percent to 75 million pounds ($96.59 million).

“N Brown had flagged several times its long running dispute with the HMRC and on legal advice had fully expected to be reimbursed for the 43.8 million pounds it had paid with regards to VAT on marketing expenditure for the period 2006-2016,” the analysts said.

The ruling exacerbates problems at the retailer which cut its margin forecast last month and said it was halving its dividend as it undergoes a shift online.

N Brown closed its last 20 stores in August and is going back to its roots with its move online. The company, which was founded in 1859, used the development of the postal system in Britain to sell goods directly to customers.

($1 = 0.7765 pounds)

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Saumyadeb Chakrabarty

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