Gallagher tax argument goes on

The Gallaher Group’s interim profit figures next week could be inflated by as much as £130m due to an ongoing dispute with the Inland Revenue.

The issue, which has run for several years, concerns the treatment of interest relief on borrowing taken out in 1997 when Gallaher demerged from Fortune Brands.

Although the Inland Revenue has denied relief for UK corporation tax, Gallaher stated in its 1998 accounts issued in March that it intends to claim relief for the interest and, if necessary, challenge the Revenue’s position during any subsequent tax audit.

Finance director Philip Burchell told Accountancy Age earlier this year: ‘The Revenue’s decision is a nonsense’, adding that the company would go to court if necessary.

The company incurred a debt of around £945m from its demerger and Burchell said interest would be ‘very substantial’. Last year’s accounts were computed on the basis of claimed relief.

Next week’s figures are expected to reflect a 5% growth in pre-tax profits.

The tax figure is not expected to appear on a separate line, and Gallaher has the backing of legal and accounting experts as well as its former parent, which has agreed to indemnify the company for relief-related losses of up to £65m.

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