The Hut, which posts goods to shoppers from Guernsey to avoid VAT, is to go ahead with IPO despite plan to close VAT loophole
The Hut Group, the firm behind controversial VAT-free online sales for Tesco, Asda, WH Smith, Dixons and Best Buy, is pressing ahead with plans to float on the stock market despite a pledge from the chancellor, George Osborne, in March to block a tax loophole exploited by the firm.
The firm, which counts the former Marks & Spencer boss Sir Stuart Rose among its investors, is understood to have appointed Rothschild to advise on the flotation, plans for which were set in train last year.
Based in Cheshire, The Hut also has extensive operations in Guernsey from where it posts goods to online shoppers on behalf of big-name retailers in an arrangement to avoid VAT. The business mostly sells VAT-free CDs and DVDs but has expanded further into cheap handbags, jewellery, novelty gifts, sun cream and underwear.
A successful float could see The Hut's founder, Matt Moulding, a former executive in John Caudwell's Phone4U empire, realise some of the fortune he has built up in the business. It was founded in 2004 to replicate the success of fellow VAT-avoidance specialist Play.com, based in Jersey. Sales , and had recently for 2010 were about £90m.
Among his existing backers are Artemis, Balderton Capital, Bill Currie – the former stockbroker who founded the high-street perfume chain Fragrance Shop – and Angus Munro, the former boss of Matalan and Poundstretcher, who became The Hut's chairman last year.
The decision to press ahead with a float surprised some online retail experts. After the chancellor's recent VAT crackdown pledge, a senior executive at one major retailer said: "I would be quite worried if I was a shareholder at The Hut right now."
In the March budget, Osborne said the VAT exemption, known as low-value consignment relief (LVCR), was being "exploited for a purpose it was not intended for". It waives VAT on goods imported from outside the EU costing £18 or less. Osborne said LVCR exploitation was damaging high-street trade and cost the exchequer £130m a year in lost tax. He said after talks in Europe that he would announce plans to end the abuse within a year.
The Hut does ship some goods, which would not qualify for LVCR, from the British mainland, though many of its clients use their own distribution arrangements for non-LVCR shipments.
The Hut is among a string of internet retailers with large operations in the Channel Islands, where speculation of a sell-off has gathered pace in recent weeks. Play.com is also said to be considering a sale, while customised greetings card group Moonpig.com is in talks to sell the firm to PhotoBox. Healthspan, a health supplements business, was reported to be seeking a new owner in January.