Update on potential VAT assessment

Cello Group plc

('Cello' or the 'Group')

Update on potential VAT assessment

The Group disclosed in its pre-close trading update on 22 January 2015 that one of Cello Signal's subsidiaries, in good faith, may not have been charging VAT on certain items provided to its charity clients appropriately. In that update, the Group also promised to update shareholders as the situation evolves.

On 6th February 2015, the Company received guidance from HMRC that the scope of the impending review may now include a wider range of items sold to Cello Signal's charity clients than anticipated at the time of the pre-close trading update. The detailed contracts and invoices have not yet been reviewed by HMRC. In the event that, following this assessment, VAT is ultimately payable on the wider range of items and services, the Board estimates that the maximum potential liability could now in theory be in excess of that indicated at the time of the pre-close trading update. Given professional advice received on the nature of the items concerned, the likelihood of this further increase in liability is considered to be remote by the Group.

The Group intends to robustly defend its historical position on this issue which it believes has been in line with received historical industry-wide practice. Further, the Group has received professional advice from more than one source that the broadening of the scope of review proposed by HMRC on 6th February is not appropriate and directly contradicts previous written guidance received by the Group and the industry.

The Board maintains that any backdated VAT assessment arising would be substantially contractually recoverable from clients should this be appropriate. 

The Group will continue to provide further updates on this matter as appropriate.

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