Agreement reached with HMRC

Cello Signal settles with taxman over £2.1 million unpaid VAT

CelloMarketing and pharmaceuticals group Cello, owner of Blonde Digital, Leith Agency and Stripe Communications, has set aside £2.1 million in a settlement with the tax authorities over unpaid VAT.

The company has been subject to a review by HM Revenue and Customs regarding the VAT status of certain supplies to its charity clients by its subsidiary Brightsource, as announced by the group with its trading update on 22 January and later on 9 February.

In a statement issued today it said: “Agreement in principle has now been reached with HMRC on the most material of these supplies, and consequently a provision has been made for £2.1m.

“This provision is stated before any potential recovery from clients. Tax relief will also reduce the impact on the group to £1.7m. While there are further types of supply on which queries have been raised, the amounts concerned are less material, and will be defended robustly.

“This agreement in principle has removed the potential for a considerable further claim on this core type of supply. Discussions and negotiations are still ongoing with HMRC on other less material types of supply.  The board continues to believe, with the support of its advisers and industry bodies, that these issues are unlikely to result in further material provisions in future years.”

The company added that: “As part of the inspection, it was determined that Brightsource had inadvertently and in good faith, zero rated certain supplies which it believed were ancillary to wider zero rated supplies and Brightsource had therefore incorrectly not charged VAT on those supplies to its charity clients. A provision of £2.1m relating to uncharged VAT on these supplies, together with an estimate of interest and penalties, has been made at 31 December 2014.

“On 6 February 2015, Brightsource received further correspondence from HMRC informing them that the scope of their review would be extended to include a wider range of supplies to its charity clients, potentially generating a larger liability on one particular type of supply. Subsequently, agreement in principle was reached with HMRC, removing this potential larger liability and restricting the required provision to the zero rated supplies initially queried. The provision recognised reflects this agreement in principle.

“Other types of supply remain under query and discussions and negotiations are still ongoing with HMRC on these less material supplies. The boards of Brightsource and the group continue to believe, with the support of its advisors and industry bodies, that these further discussions are unlikely to result in further material liabilities in future years. Any further liability claimed by HMRC will be defended robustly.  The board believes that the maximum contingent liability that could be claimed by HMRC in relation to these other supplies is £0.8m.”

The company made the announcement in its annual results which showed group gross profit of £81m (2013: £74.7m) on revenues of £169.9m (2013: £159.7m). Headline profit before tax was £9.4m (2013: £8.5m). It said its results “reflect a strong performance by Cello Health and a solid performance by Cello Signal against a tough comparator with 2013.

Cello Signal – which includes the strategic marketing businesses – “had a solid year, against an excellent year in 2013”, it said. Headline operating profit for the division fell from £3.9m to £3.4m.

The board is proposing a final dividend of 1.8p per share (2013: 1.61p), giving a total dividend for the year of 2.6p (2013: 2.25p) an increase of 15.6%. The dividend has grown every year since 2006 and has grown by 10% or more for the past five years.


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