Shares in the UK's biggest electronics retailer Dixons have fallen after it warned that it would be hit by by the closure of a tax loophole.

Dixons said the tax - on profits from selling extended warranties to customers buying goods such as washing machines - would cost the company �20m a year.

That is not as high as some experts had been predicting, but on Thursday the company's shares fell by more than 9% to 171.5 pence.

The measure was announced by Chancellor Gordon Brown in his pre-Budget report and effectively closes a loophole.

Tax havens

Retailers such as Dixons have been able to make substantial profits by selling extended warranties - insurance policies that cover the cost of repairing goods.

When the warranties were introduced 20 years ago some retailers set up companies to sell the warranties in offshore tax havens.

That meant the profits were not covered by UK tax laws, but the chancellor has changed the rules.

Dixons said it needed to assess the full implications of the changes.

Aggressive tactics

Kingfisher, which owns Comet, said the tax would cost the company �6m-�8m a year.

And Carphone Warehouse thought its tax bill would rise by �2m in the year to March 2004.

The tax could push up the price of extended warranties.

These are already being investigated by the Competition Commission because of concerns about aggressive tactics and high prices.