N Brown has been hit with a massive bill from the taxman, prompting the fashion group to warn that costs would be higher in the coming years.
A long-running dispute with HMRC saw the Simply Be and Jacamo parent company slugged with marketing costs that are likely to be between £6 million and £9 million higher from 2020, due to irrecoverable VAT.
The news prompted shares in N Brown to fall two per cent this morning.
The fashion retail company had argued that its marketing expenditure principally relates to the sale of goods, which is VAT standard-rated, rather than financial services, which is VAT exempt.
However, the judge sided with HMRC and found that N Brown is also in effect marketing financial services when it is marketing goods.
The court also ruled that marketing costs should not be split based on financial services turnover.
Both parties must now propose how to split marketing costs going forward, meaning a proportion of VAT will be irrecoverable.
The news comes amid a turbulent period for N Brown.
Angela Spindler left her position as chief executive abruptly in September, just a few months after former Tesco veteran Matt Davies took over as chairman.
Steve Johnson is acting as chief executive while the company searches for new leadership.
N Brown also announced it would close up to 20 stores in June, blaming weaker footfall on the high street.