Ref. 25089-26A SWINDON shop could be forced to pay VAT on sales of magic mushrooms.

The Festival Trading Company has been selling tubs of psychedelic mushrooms for more than a year.

The Morley Street store is one of a growing number of outlets across the country which exploit a legal loophole to sell the mushrooms without breaking the law.

Currently, most shops do not pay VAT on the mushrooms which contain the Class A drug psilocin.

But a Customs and Excise ruling looks set to change that and pave the way for a £1 million tax windfall for the Treasury.

The department says traders cannot get around VAT by claiming the mushrooms are a foodstuff, and therefore zero rated in taxation terms.

Officials say because most mushrooms are consumed for their stimulant rather than nutritional effects, sales are subject to the standard 17.5 per cent VAT charge.

In a letter sent in response to a query from a North London trader, advisers said: "It is evident from various magic mushroom websites that you do not use it based on the amount required in a recipe, you use amounts based on what sort of 'trip' you want."

Lisa Cook, who runs the Festival Trading Company, said she has not been informed of any changes.

And she said VAT guidelines on the mushrooms were a shambles.

"Different officials tell you different things," she said.

"We haven't been told anything is changing.

"I am quite happy to charge VAT, but the rules need to be the same right across the board."

Lisa who also stocks paraphernalia such as bongs and pipes sells between two and four kilos of mushrooms a week.

They are sold in tubs of 10 grams for £6 and 20 grams for £10.

Ms Cook said: "All sorts of people buy them.

"It's not just student types. We also sell them to business people, and my oldest customer is 70."

They are not sold to under-18s.

A Customs and Excise spokesman said: "Our position is that where mushrooms are lawfully sold they are subject to the standard rate of 17.5 per cent.

"It is up to traders to make sure they are paying the right amount.

"If anyone is in doubt, they should contact us."

According to the law, it is only illegal to sell the mushrooms if they have been processed, for example by drying, cooking or brewing them into a tea.

Traders get around the law by selling them fresh.

But the law was thrown into confusion last month when the Home Office announced that it believed sales of mushrooms "packaged as a product" were unlawful.

Tamash Lal