VAT Update

Cello Group plc ("Cello" or the "Group")

VAT Update

Cello Group plc provides the following update regarding the ongoing dispute with HMRC regarding zero rating of certain supplies to charities clients by a subsidiary of Cello Signal.

In December 2015, following extensive dialogue with HMRC, the Group made an offer of settlement to HMRC of £2.4m to resolve the retrospective position. Further detailed information was also provided to HMRC in January 2016. The offer was made following complex consultation with specialist advisors, and it was considered to fully satisfy the concerns that had been raised by HMRC. Accordingly, the provision of £3.2m made in the accounts for the year ended 31 December 2015 which were announced on 17 March 2016 was appropriate. This provision also included an estimate for penalties and interest, but it assumed no contractual recovery of VAT from clients.

On the afternoon of 21 March 2016, Cello can confirm it received a letter from HMRC which disappointingly rejected the settlement offer made by the Group. Since receipt of this letter the Group has been in discussions with its specialist advisors to understand its impact on the dispute. Discussions with HMRC also remain ongoing. The Board will continue to assess and review its provision and will continue to update shareholders as the position regarding the dispute becomes clearer.

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