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Electrical retailers lose warranty bonus.

Shares in electrical retailers fell sharply yesterday after it emerged that new tax rules in the Chancellor's pre-Budget report could slash their profits.

Dixons, Kingfisher and Carphone Warehouse all saw their shares fall as they revealed how changes to Controlled Foreign Company legislation would hit home.

Under the proposals, that Gordon Brown outlined yesterday, profits from the sale of extended warranties on items such as domestic appliances will be brought into the UK tax net.

Warranties can add about 50 per cent to the cost of equipment like washing machines and are very profitable for retailers such as Dixons, which also owns the Currys chain.

A loophole currently allows companies to channel profits through off-shore havens, meaning tax is significantly lower.

Retailers arrange the extra insurance cover on electrical goods like domestic appliances on behalf of associates operating from outside Britain, keeping the profits free from UK taxes.

Blue-chip Dixons was the hardest hit, tumbling nearly eight per cent as it warned that its tax charge could increase about pounds 20 million a year.

In a brief statement, Dixons said it was assessing the full implications and would make a further statement, if necessary, 'in due course'.

Shares in the Kingfisher group, owner of number two UK electricals business Comet, fell 2.5 per cent before recovering slightly to 231.25p.

A spokesman for the group said taxes were likely to rise - and hence revenues would fall - by between pounds 6 million and pounds 8 million.

'It's come as a surprise and we're studying the details,' he said. 'Clearly, any change will have implications for Comet, but it's going to be much less affected than others in the sector.'

Comet is smaller than Dixons and Kingfisher is seeking to spin off the business in the next few months as it concentrates on its DIY offering at home and in Europe.

FTSE 250 mobile phone group Carphone Warehouse will not be hit as hard as Dixons or Kingfisher, but its tax bill is still likely to rise by pounds 2 million in the year to March 2004.

'Under the draft legislation, certain profits from the Carphone Warehouse's insurance activities that previously were exempt from UK taxation will now be taxable,' it said. Shares dipped 2.5p at 97.5p.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Nov 29, 2002
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