The Deloitte Disaggregation

27th May 2021

Why Sports Direct hired a delivery company with no drivers and no vehicles.

Mike Ashley’s Frasers Group (formerly Sports Direct International), which recorded revenues just shy of £4bn last year, is facing challenges from several European tax authorities over its involvement in a scheme used to avoid the payment of VAT outside the UK. Details of the arrangement were revealed for the first time in a UK court ruling. They saw Sports Direct contract out delivery of goods to customers on the European continent to Barlin Delivery Limited, a company set up by Ashley’s elder brother. It in turn used providers such as DHL, in the hope that this would mean for tax purposes Sports Direct was not providing goods to European customers, and could thus pay VAT in the UK, rather than where the customer was based. The scheme, designed by accountancy firm Deloitte and apparently sold to a number of retailers will have potentially cost European tax authorities billions of Euros in lost VAT receipts.


EU countries began co-ordinating VAT rates in 1992 in order to level the playing field, introducing a minimum standard rate of 15 per cent.1 However, large discrepancies remain, with rates ranging from 17 per cent in Luxembourg to 27 per cent in Hungary.2 At 20 per cent, the standard rate of VAT on most goods and services in the UK is lower than that in many European countries. In addition to this, a reduced rate of five per cent applies to some goods and services and a zero rate applies to others, including most food, books and newspapers, and children’s clothing.3 As a result of this zero-rating children’s clothing and footwear are VAT free in the UK,4 making them substantially cheaper than across the EU where VAT is charged.

Distance Selling

The application of VAT to international trade is based on the destination principle, which means that exports are free of VAT, with imports taxed at the local rate.5 Therefore, most goods exported to non-EU countries and all goods supplied to customers who are registered for VAT in another EU member state are zero-rated.

For supplies to customers who are not registered for VAT in another EU member state (including private individuals) VAT is normally accounted for by the supplier as a domestic supply in the EU member state from which the goods are dispatched.6 This means that the seller should register for VAT in the customers’ country, and pay the local VAT rate.7

So, when Sports Direct sells standard-rated clothing to a customer in Finland, and dispatches the goods to the consumer, VAT should be payable in Finland at the local rate of 24 per cent, not in the UK at 20 per cent. The same would be true if the carriage of goods was carried out “on behalf of” the supplier, i.e. Sports Direct.

The 2010 Avoidance Structure

In January 2010 Sports Direct set up a structure which they hoped would get around the requirement to register with foreign tax authorities for the sale of goods via their website to customers overseas.

The structure involved setting up a UK company, Etail Service Ltd, to provide fulfilment services. Etail had no employees other than the directors.8

The idea was that after Sports Direct made a sale to a customer overseas, the customer would then contract with Etail limited to deliver the goods. Sports Direct hoped that this would mean that the delivery or supply would not be happening “on behalf of the company” because the customer would be contracting directly with Etail merely for the delivery.

The scheme was designed by Deloitte, which court documents state had also been sold to several other UK Retailers. Irish tax authorities refer to this as a “disaggregated VAT scheme”.

Reaction of tax authorities to the scheme

Sports Direct wrote to HMRC to ask whether they agreed that the supply would be subject to UK VAT rather than VAT in the relevant EU country, given that Etail was separate to

Under UK VAT rules, a sale only becomes exempt from VAT if it is subject to VAT elsewhere. This is to prevent companies from not paying VAT anywhere by claiming a sale is made abroad.

In its 2010 letter to Sports Direct, HMRC agreed that as the company was not supplying and delivering the goods there would be no distance sales, and therefore the company could pay UK VAT. However, HMRC did recommend that Sports Direct contact the relevant tax authorities in the country it was selling in to make sure VAT was not payable there. If the response from those countries was that VAT was due there, Sports Direct could apply for a refund of any UK VAT.

Sports Direct did not inform HMRC of any contact with foreign tax authorities, and a subsequent court case between HMRC and Sports Direct confirms that HMRC told Sports Direct over the following five years on several occasions that it should contact foreign tax authorities to confirm its VAT position overseas.

The 2015 Avoidance Restructure

In June 2014 Sports Direct received an email from the French tax authorities, asking whether French or English VAT was paid on goods sold into France.9 With tax authorities across Europe beginning to challenge similar structures adopted by other retailers, Sports Direct sought to alter its online sales structure. Sports Direct disclosed in court documents that the new structure was put in place “for the exclusive purpose of responding to the real and present threat of litigation that was anticipated from the French tax authority and other tax authorities”.10

Before a change could be made the Irish Revenue contacted Sports Direct in January 2015, asserting that it should be paying VAT in Ireland when selling to Irish customers. This is the subject of ongoing litigation.

On the advice of Deloitte, the sales structure was altered in February 2015, introducing newly incorporated Barlin Delivery Limited, a delivery company set up and owned by John Ashley, Mike’s elder brother. John had only left Sports Direct, where he had been an IT director, that year. In a move heavily criticised by shareholders, in 2017 Sports Direct asked investors to approve an £11m payment to John for supposedly being underpaid for his work from 2007 to 2015. The payout was blocked.11

While the 2010 structure was relatively transparent, in that public accounts clearly showed that Etail was owned by Mike Ashley, the 2015 structure appears to have been an attempt to muddy the waters in order to get round VAT legislation.

When the arrangement was changed in 2015, Sports Direct’s website explained that Barlin “does not sell goods, but only delivers them.” When placing an international order with Sports Direct, Terms and Conditions would state that “a contract to deliver the goods takes effect between you and Barlin Delivery.”

However, Barlin owned no trucks and employed no drivers. The company was registered to a residential property in a cul-de-sac in Cleethorpes.12 Barlin effectively acted as a middle man, paying couriers such as DHL to collect parcels from a Sports Direct warehouse.

Companies are generally required to provide information regarding dealings with related parties where there is a common interest, such as business relationships with close family members of directors. The Barlin Delivery arrangement was not disclosed in Sports Direct’s published accounts.

The then Sports Direct chairman, Keith Hellawell, insisted in 2016 that it was not “technically required” to disclose the deal, though added that telling investors might have been a “useful additional disclosure”.

After the Financial Times reported on the matter in 2016, the accountancy watchdog the Financial Reporting Council (FRC) began investigating the arrangement,13 looking at the conduct of auditor Grant Thornton and why the relationship between Sports Direct and Barlin wasn’t declared in the 2016 Financial Statements.14 Following the launch of this investigation Barlin was quickly dissolved. To what extent Grant Thornton were aware of the Deloitte – Sports Direct VAT avoidance scheme should be clearer once the FRC investigation has concluded.

Continental questioning

In 2015 HMRC seems to have become concerned that arrangements like the one deployed by Sports Direct could be used to undermine competition within the single market. It (and, separately, Belgium) asked the EU VAT committee for its thoughts about this distance selling arrangement. The committee was set up in order to promote the VAT directive and consists of representatives of EU Member States and of the Commission. The response was that tax authorities should look at the “economic reality” rather than the “literal approach of looking at the contractual structure”.15 What this essentially meant was that if a customer ordered goods from Sports Direct, the company is liable to account for VAT in the buyer’s country, and can’t use Barlin as a get out.

The pre-2015 investigations launched by both the French and Irish tax authorities were later joined by litigation from the Belgian and Finnish tax authorities.

In August 2015 French tax authorities launched a formal investigation into Sports Direct’s VAT arrangements, and have since concluded that VAT is payable in France. This is also the subject of ongoing litigation.

In May 2017 the Finnish tax authorities decided that Sports Direct should be paying VAT in Finland, which has led to litigation. That same year, the company’s chairman Hellawell tried to put a positive spin on the company’s financial report by claiming it had contributed £1.8bn in taxation to the UK economy. Critics quickly pointed out that £1.3bn of this was actually VAT paid by customers.16

In 2019 Sports Direct was the subject of a tax audit in Belgium, with Belgian authorities billing the company €674m including 200 per cent penalties and interest.17 18 The tax bill led to a delay in publishing Sports Direct’s annual accounts, and saw Grant Thornton quit as the company’s auditor.19 Eventually RSM was appointed as auditor, ending speculation that the government may be forced to intervene if no other auditor was willing to take on the job.20

The 2020 annual report of the Frasers Group, which owns Sports Direct, states that the Belgian tax enquiry has been settled for “an immaterial amount” with “no material consequences”.21

The future of European VAT

The UK exited the EU VAT regime, along with the Customs Union and Single Market, from 1 January 2021. This means that supplies between the UK and the EU are now imports or exports, subject to UK or EU VAT.

One result of this change is the loss of Distance Selling thresholds for UK sellers to EU consumers. UK retailers will now have to register for VAT purposes in EU states if they want to sell in the EU, regardless of how much trade they do. 22

Different rules will also apply to Northern Ireland, which may result in businesses from mainland Britain relocating to Northern Ireland in order to receive easier access into European markets.

The EU 27 have agreed to introduce new legislation as part of the EU Ecommerce Package, which comes into effect 01 July 2021, in order to address attempts to exploit distance selling to avoid VAT. The reforms include the launching of the ‘One-Stop-Shop EU VAT return; ending low-value import VAT exemption; and making marketplaces deemed supplier VAT.23

So what?

We do not know what per cent of Sports Direct sales to Europe are goods zero-rated in the UK, and we do not know how many sales are in countries with higher VAT rates than the UK. As a result of this, we don’t know how much this scheme will have saved Sports Direct. However, even a saving of between 1-2 per cent on a turnover measured in billions would result in significant losses to tax authorities, and with margins in the retail sector razor thin, this kind of scheme would also result in a substantial unfair advantage over competitors.

What is more, is that this scheme appears to have been used by more than one company so the potential losses to tax authorities could be very significant, running into billions.

Perhaps most importantly of all, the case also reveals how, despite claims from the tax industry following the global financial crisis that major consultancies are no longer in the business of designing and marketing complex tax avoidance schemes, they do still appear to be.


Sports Direct / Frasers Group did not respond to our request for comment before publication, however, they did provide comment to The Guardian which published an article in part based on our research.

Sports Direct said that Barlin had not been set up to reduce its tax bill but was instead to used to reduce administrative complexity. The company and suggested it had settled with some foreign tax authorities and remained in discussion with others. It declined to give further details.

“It would be inappropriate for the group to comment further on the progress of settlement negotiations or to provide details of settlements which have been reached,” the company said in a statement to the Guardian.

“As we have repeatedly stressed, the group is adopting a fully cooperative approach with HMRC and EU member states in order to ensure VAT was paid in the correct place.

“That process is not yet complete – progress has been slowed by the ongoing pandemic – but we hope and expect that it will be completed soon.”

Sports Direct told the Guardian that it was “not thought necessary” to check its structure with foreign tax authorities because HMRC had not objected to tax being paid in the UK.24

Deloitte did not respond to our request for comment.

Following publication, we were contacted by lawyers acting for Frasers Group, who asked us to publish the following on the record statement from their client. Frasers Group refused to answer any further questions regarding the arrangements.

“Acting on advice from its tax advisors, the Group arranged its online sales to ensure VAT was due and payable in the UK on all relevant sales for the period 2010-2017. This approach was consistent with many other retailers in the UK and across Europe and did not give the Group any unfair advantage.

The arrangements were made for the purpose of reducing the significant administrative cost and complexity that would arise from registering for VAT in multiple jurisdictions across the EU many of which had low levels of sales at that time.

VAT was always charged at the UK rate and accounted for to the UK, as originally agreed by HMRC. HMRC was fully informed throughout this period of how the Group accounted for VAT.

Throughout this period HMRC had (and continues to have) a Customer Compliance Officer attached to the Group with whom the Group is in regular contact.

As soon as it was apparent that the meaning of Article 33 of the EU Principal VAT Directive applicable to distance sales might be open to interpretation, the Group itself took steps to agree an approach with HMRC to have the meaning of Article 33 clarified by the CJEU. This was finally clarified by the CJEU in a preliminary ruling in June 2020 [Case C-276/18 KrakVet.]”

Photo by Christian Lue on Unsplash


1 Directive 92/77/EEC (later updated with Directive 2006/112/EC), Eur-Lex,

2 EU VAT Rates, VAT Number Formats & Thresholds, VAT Global,

3 HMRC Guidance, ‘VAT rates on different goods and services’,

4 HMRC Guidance ‘Young children’s clothing and footwear (VAT Notice 714),

5 OECD international VAT/GST Guidelines, OECD, 28 June 2011,

6 HMRC Guidance, ‘The single market (VAT Notice 725)’ paragraph 6. 

7 To make things easier for small businesses, sales below a certain threshold can be paid to the tax authority in the seller’s home country rather than the destination country. The VAT threshold varies from country to country, ranging from €0 in Spain, to €75,000 in Ireland. With an annual turnover in the billions, Sports Direct would not qualify as one of such small businesses.

9 The Financial Reporting Council LTD v Frasers Group PLC [2020] EWHC 2607 (Ch), Bailii, 05 October 2020,

10 The Financial Reporting Council LTD v Frasers Group PLC [2020] EWHC 2607 (Ch) at para 21(3).

11 Sports Direct shareholders block £11m payout to Mike Ashley’s brother, The Guardian, 13 December 2017,

13 Sports Direct tears up deal with Mike Ashley’s brother, Financial Times, 15 June 2017,

14 The Financial Reporting Council LTD v Frasers Group PLC [2020] EWHC 2607 (Ch), Bailii, 05 October 2020,

15 Retail LTD & SDI (Brook EU) LTD V Revenue and Customs [2017] UKUT 0327 (TCC) Bailii, 24 October 2016,

16 Sports Direct chairman tries to palm off VAT receipts as “tax contributions”, The London Economic, 20 July 2017,

17 Sports Direct gets all-clear in Belgian tax row, The Telegraph, 30 January 2020,

18 Sports Direct facing £605,000,000 tax bill, Metro, 27 July 2019,

19 Grant Thornton to quit as Sports Direct auditor over €674m tax bill, Financial Times, 29 July 2019,

20 Sports Direct appoints RSM as new auditor, Financial Times, 23 October 2019,

22 UK to leave EU VAT regime 31 Dec 2020, Avalara, 06 October 2020,

23 EU 2021 closing the delivery VAT avoidance loophole, Avalara, 06 July 2020,

24 Sports Direct under scrutiny from EU tax authorities over VAT bills, The Guardian, 02 May 2021,