Retailer JAG could be on the brink of collapse after it was told by HM Revenue and Customs (HMRC) to pay an upfront deposit of £600,000 in order to continue making monthly VAT payments of £150,000.
VAT inspectors, worried by the company’s recent losses and fragile financial state, originally told the retailer it would have to pay a deposit of £1.6 million in case the company, which went through a prepack administration process in February, runs into further problems.
JAG refused. It was subsequently requested to stump up a deposit of £600,000 – four months payments in advance – in order to continue making monthly payments of £150,000.
However managing director John George also deemed this request unacceptable, and said JAG’s financial situation precluded it putting down such a sum. JAG has run at a £200,000 loss for two months in succession, with £700,000 monthly costs outrunning takings of £500,000. It is the worst two trading months in the company’s 18-year history.
If George fails to make the downpayment, JAG could be forced to shut down its retail estate of 75 shops, putting around 250 people out of work.
George said: “If the VAT office asked for one month’s deposit I would deem that acceptable but four months payment in advance is way beyond our reach. There I was thinking the Government wanted to keep people working, not force them out.
“We’re currently taking advice and there are two routes we can pursue – the situation can be reviewed or we can appeal the decision. But it may be four months before we know more. It’s a situation that is worrying me immensely as the implications are extremely threatening. We must find a solution.”
JAG is cutting costs urgently to reach profitability and convince HMRC to reduce its demands. It has so far shut 12 stores, including sites in Dorchester, Salisbury and Weymouth, with the possibility of reopening them as franchise sites. As a result, 87 staff have been made redundant.
“Letting staff go is not something I wanted to do but our wage bill will be slashed enormously because of it, saving £150,000 a month,” said George. “It’s showing the VAT office that we’re making an effort to cut costs by changing the way we operate.”
Around 45 staff members have shown interest in being part of George’s franchise idea. One of the 12 shops to be closed – Barnstaple in Devon – has reopened as a franchise store already, and will act as a trial site. George hasn’t ruled out the possibility of running most, and possibly all, stores as franchises.
“If interest continues to rise, we’ll look at switching more stores to this style,” he said. “I wouldn’t rule out a 75/25 split in either direction, or a complete transformation of the store portfolio somewhere down the line.”
JAG has also reduced staffing levels at its headquarters in Perranporth, Cornwall, by around half, with seven redundancies across its connections, accounts and dispatches departments.
George said: “Some of the people I’ve let go have been with us a long time. However we were employing the same number of staff as we had when we owned 150 stores as part of the Go Mobile deal. When that collapsed, and with the need to reduce costs, the writing was unfortunately on the wall.
“Adapting to the revenue share models has been difficult and has increased the tough trading conditions.
“However, that revenue will reach us within the next couple of years and we have to ensure we do whatever we can to ensure we’re still around to receive it.”