Many stores charge a ‘handling fee’ on credit transactions which they claim is VAT exempt.
Customs insists the fee is only notional because there is no discount for cash paying customers.
Paymaster general Dawn Primarolo said: ‘If left unchallenged this sort of scheme allows large companies to undercut small business rivals by hundreds of millions of pounds and means less money from VAT for schools and hospitals.’
Customs expects to test the issue in the courts and says accountancy firms are responsible for the ‘handling fee’ scheme through advice to clients.
PrcewaterhouseCoopers said it had advised clients to use the scheme but said it believed it was ‘within the existing legal framework’.
And PwC critiscised the way in which the government department was dealing with the issue.
‘We would only advise retailers on this basis. If Customs wish to challenge the legality of such arrangements, we would suggest the place to do this is in the courts, not in the press,’ said a spokesman.
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