Kidnapped duo beat VAT carousel penalties

Two businessmen who were kidnapped by criminal associates of those who carried out a carousel fraud have won a case against HMRC penalties relating to two closely linked tribunal cases. 

In Langhorne v Revenue & Customs [2014] UKFTT 533 (TC) and Wood v Revenue & Customs [2014] UKFTT 532 (TC) (27 May 2014), John Wood, director of Asgard UK and Langhorne, director of Formel E appealed against penalties as they said they were both unwittingly involved as middle men in a carousel fraud.

The tribunal said the two cases (Wood and Langhorne) contained some of the same evidence but could not have been consolidated.

Both men are polymers experts and claimed they had been "unwittingly" involved in a carousel fraud and were also kidnapped by criminal associates of those who carried out the fraud. 

In Langhorne's case, in dispute was £519,437 in penalties, issued on grounds that his company had evaded VAT and was liable to a penalty under section 60 of the act. In Wood's case, he was appealing penalties of more than £1m. 

HMRC had alleged that the conduct of the companies, giving rise to the penalties was “in whole or part attributable to the dishonestly" of Langhorne and Wood.

Both companies had claimed VAT credits, but the Revenue argued they weren't entitled to these. 

Therefore HMRC imposed penalties, which it said it informed both men of in 2005. All penalties related to sums of input tax claimed, which HMRC said were evaded.

The court heard how the two companies both bought a large quantity of irrigation hose from a company, VPS (UK), which manufactured the hose. The transaction was a taxable supply on which the standard rate of tax was payable.

HMRC said that VPS sold most of the hose it manufactured to either Formel or Asgard.

Revenue Commissioners alleged that Formel’s sole business was the purchase and export of the hose. They said the company bought all its hose from VPS and sold it all to a business called Tazar Industries (Tazar) in the UAE.

In addition, they said the hose was being sold to Formel and Asguard of inflated prices of £1.39 a metre but true value between 10p and 20p - Formel sold on at £1.45 per metre.

VPS was alleged to be a company owned and operated by a man called Thompson and was set up with a man called Volker Kappler, who turned out to be a convicted criminal.

According to the tribunal there was no evidence that Langhorne knew Kappler was involved until after the transactions had occurred and HMRC agree there is no evidence, other than Thompson’s word, that Kappler was involved in VPS. 

Langhorne knew Kappler’s companies dealt with Thompson’s companies but didn't know he may have been directly involved in the operations of VPS.

HMRC commissioners alleged that Thompson, through a company called Tazar, was selling hose to his own company and an "interposition of a third party made no sense in ordinary commercial terms" 

Formel's terms of business with VPS & Tazar were that it did not need to pay VPS until a week after it had been paid by Tazar. And Tazar not need to pay Formel until 60 days after the hose was put in the ground.

HMRC said the over valuation of hose was a sham to claim input tax and that under rules for crediting this kind of tax, both Formel and Asguard would be able to claim repayment from HMRC before it was required to pay tax inclusive price to VPS.

In a twist, the tribunal heard how the information came to light after Langhorne and Wood were both kidnapped in Durham by Kappler’s associates dressed as uniformed customs officers. They were both threatened with guns and beaten. The kidnappers also made demands for money. After the ordeal, Kappler rang a customs officer and told her information about 'the hose scam'. 

HMRC argued in both cases that deals between VPS and the companies were unnecessary, based on favourable terms. It did not need either to add value to hose, so they were getting profit for little effort. The two men also said they were unaware to the extent to which Tazar was connected with Thompson and that he had reported various problems in dealing with the UAE.

HMRC agreed that Thompson was acting dishonestly and the tribunal concluded that it could have been possible he was duping both Wood and Langhorne.

The tribunal accepted that neither were involved with VAT fraud. 

Comments

Wooow reads like a crime novel

AndrewV12 | | Permalink

To complicated for me, I am going to bail out right now.

Hmmm - complicated reporting or I am too simple

blueskies | | Permalink

So this was written by an accountant for accountants? Well - This accountant does not understand it! Couple of questions eg was the tubing exported to the UAE at the end of the day? In simple terms (please)if VAT was paid on full price to VPS and recovered at full price by the two intermedaries how might the VATman be out of pocket?

Who wrote this?

Ardeninian | | Permalink

I'm sorry, but this is appallingly written - it looks like rough notes someone's jotted down in a hurry. It certainly doesn't do a good job of explaining the cases. Perhaps an AWeb staffer could try to rewrite this in English?

Suspicious    1 thanks

geoff_payne | | Permalink

I would guess that a uniformed undercover officer is a bit of a paradox!

Rachael_Power's picture

Hi Bluskies and Ardeninian, I    1 thanks

Rachael_Power | | Permalink

Hi Bluskies and Ardeninian, I'm not an accountant but I did write this. I'm sorry you think it's badly written, it is based on two quite lengthy court transcripts. 

I will attempt to verify some of the points or re-write some of the paragraphs. In future if you have queries or questions like that feel free to private message me or email editor@accountingweb.co.uk.

Thanks!

Nick Graves's picture

So...    1 thanks

Nick Graves | | Permalink

Ungar was over Oveur, but I was under Dunn?

My advice to the writer is to start from the beginning...

JDBENJAMIN | | Permalink

...and describe exactly what HMRC alleged was happening in a logical order. Then we might be able to male sense of it. Also what's a 'uniformed undercover officer'?!!

Re write

AndrewV12 | | Permalink

Hi Rachael

I think you wrote it okay, its just a very complicated,  unusual, one off, some say un-believable case easy to summarise. 

 

cfield's picture

Bad spelling too

cfield | | Permalink

Was it gas meters or electricity meters they were selling at £1.45 per meter? I think you mean "metre" not "meter".

Honestly Rachael, that is terrible! Did they not teach you spelling at school? You did it twice in the same sentence so obviously not a typo.

And the officers could hardly have been undercover if they were in uniform, could they?

I know all this sounds a bit "picky" but it undermines the entire article when you make errors like that. Maybe you should ask someone to proof-read them in future.

cfield's picture

Sounds like they were a bit fortunate to me!

cfield | | Permalink

Getting back to the story itself, it sounds to me like these guys were extremely fortunate to get off those penalties, or not be serving a prison sentence even.

If HMRC are right that the price was vastly inflated, they must have known something was wrong. Presumably the sale was arranged at the same time as the purchase otherwise they wouldn't have entered into it. They must surely have known that their client and supplier were connected somehow, especially on those generous payment terms.

Langhorne knew Thompson and Kappler were associates but not that Kappler was involved in this scam. Or at least he says he didn't know. I wonder if the police have been involved in this case yet and investigated the background of these 2 gentlemen, including all their e-mail and mobile phone records.

We can only hope HMRC have "wised up" to these carousel frauds since this case occured in 2005 and don't entertain large input tax claims until they are sure the VAT was originally paid in the first place.

Rachael_Power's picture

Cfield, I do apologise for

Rachael_Power | | Permalink

Cfield, I do apologise for the 'meter' spelling error (which was a genuine error on my part). 

While I really appreciate you flagging up errors in my copy, if you do have complaints in future I would be grateful if you could please email them to editor@accountingweb.co.uk so my editors and I can address any issues there are.

All of my articles are proof read by before publishing.

Rachael, read your last sentence again...

JDBENJAMIN | | Permalink

...I assume that wasn't proof read!

lindaluvdup's picture

JDBENJAMIN    2 thanks

lindaluvdup | | Permalink

Unnecessary. Surely, we're all agreed on a common cause here and should support each other.

Constructive criticism is good, anything else is a waste of time unless it's  truly good humoured joke. Also, I think it was really decent of Rachael not to criticise your initial two line comment for the same reason - unless it really is possible to "male sense out of it". Personally, I'd rather try to make sense out of it!

P.S. please don't bother notifying me about my spelling mistakes etc. I couldn't care less!