Retailers to lose £200m as tax loophole is abolished

An independent tribunal has closed a tax loophole that HM Customs and Excise said is worth£200 million a year to UK retailers.

More than 50 high street retailers had adopted a scheme under which they stated on credit and debit card receipts that customers must pay a 2.5 per cent 'card handling fee'.

Retailers argued that the fee should be free from VAT. However, Customs and Excise said the price of any given goods would have been exactly the same without the fee.

The tribunal decided Debenhams, which was a test case as one of the first to adopt the approach, will be taxed on the full retail price of goods sold in store. Debenhams has continued to pay tax on the fee pending a decision so will not owe money.

Economic secretary to the Treasury John Healey said: 'If it had been allowed to carry on, this would have cost the country£200 million. We will not allow tax payers to be cheated in this way.'

Customs and Excise said the ruling will apply to other retailers that have adopted the tactic.

The authority said retailers had been creating wholly-owned card handling subsidiaries to which the 2.5 per cent fee was payable. It said the scheme had been marketed to them by 'large accountancy firms'.

Debenhams was unavailable for comment.