REDEEM Holdings, the mobile phone recycler, has fallen into the red after incurring £600,000 costs associated with a tax dispute.

The exceptional charge is disclosed in the Bathgate-based company’s accounts for the year to 31 March when Redeem made a £2.2m pre-tax loss, compared with a £92,000 profit in the preceding year.

The loss also reflects £1.7m exceptional costs associated with a refinancing and restructuring work completed by Redeem.

In the accounts Redeem says it provided £605,000 in respect of money the company may have to pay to HMRC in coming months.

“Redeem Limited has entered negotiation with HMRC regarding the settlement of liabilities relating to Employee Benefit Trusts which were established in prior years for the benefit of former directors and employees” said the company.

“Whilst there has been no agreement of the amount of this liability, the company now expects a settlement will be necessary and accordingly a provision (including interest) has been established as noted above. This is expected to be settled within 12 months subject to ongoing negotiation with HMRC.”

Redeem said the trusts date from well before current management bought the business in 2011. None of the current directors or employees have extracted cash through the trusts.

Employee Benefit Trusts have attracted controversy.

They were used by some companies to pay employees in a way that reduced the amount of tax and national insurance the beneficiaries had to pay.

HMRC has clamped down on the use of Employee Benefit Trusts.

The accounts show Redeem incurred £1.3m costs associated with a refinancing and share issue it completed during the year to 31 March.

Last September Redeem secured £15m funding from London-based financiers, Praesidian Capital and Connection Capital.

The company’s chairman Trevor Bayley said then Redeem aimed to triple in size over the following three years and could float on the stock market.

Redeem has achieved rapid growth on the back of the dramatic increase in the usage of smart phones around the world. This is encouraging consumers to trade in older models.

Redeem increased turnover by around 50 per cent in the year to 31 March, to £80m, from £54m in the preceding year.

The company incurred £267,000 costs relating to the closure of its Scottish warehouse. The accounts state this resulted in redundancies, without giving details.

The accounts add the company incurred £192,000 staff costs following a head office restructuring.

Underlying profits increased to £1.1m from £502,000.

Founded in Scotland in 1999, Redeem has built up operations across Europe, Asia and the Middle East helped by acquisitions.

Mr Bayley, a founding partner of the HG Capital private equity business, took charge in 2012.