HMRC’s Octagon Green investigation: One key takeaway

In 2014, HMRC started investigating Octagon on suspicion of fraudulent tax evasion related to Octagon’s operations at Blaydon landfill site in Newcastle upon Tyne.

In 2018, the Environment Agency inspected the same site following complaints that a terrible odour was emanating and litter was escaping into nearby gardens. By then, the site was operated by another company, but under Octagon’s environmental permit.

We look at the complexities and outcomes of the investigations, the challenges for Octagon’s finance team in navigating them, and the lessons the cases hold for accountants.

HMRC’s investigations into Octagon

In 2014, HMRC started investigating Octagon on suspicion that Octagon had fraudulently avoided paying Landfill Tax and VAT, which is a criminal offence.

To conduct the investigation, HMRC ran observations at the landfill site, seized paperwork, and interviewed and arrested suspects.

In September 2016, HMRC sent Octagon two assessments, both of which applied to the period from 28 February 2013 to 30 September 2015. The first, for Landfill Tax, totalled £57 million and the second, for VAT, totalled £12 million. HMRC stated that these assessments had been made separately to the criminal investigation.

However, in 2020, HMRC dropped the criminal case. Octagon then appealed to the First-tier Tribunal (FTT) against the assessments – four years after they were made, which is usually too late.

The FTT held that Octagon could appeal the assessment for Landfill Tax, but not for VAT. In November 2023, the Upper Tribunal (‘Tribunal’) overturned the FTT’s decision, finding that Octagon could appeal both assessments.

Why the Upper Tribunal allowed Octagon to appeal HMRC’s tax assessments

There were two main reasons why the Tribunal allowed Octagon to appeal HMRC’s tax assessments.

First, the Tribunal found it was reasonable that Octagon’s representatives believed they could delay asking for a review until the criminal investigation was over.

This finding was based, partly, on new evidence submitted by Octagon in November 2022, which included emails to HMRC from Octagon’s accountant.

The accountant noted: 

• The assessments were complex.
  
• HMRC had made the assessments based on information from the criminal investigation team, which contained anomalies including disparity between the number of vehicles arriving at and leaving the landfill site in February.
• Octagon could not conduct its own assessment, given that the police had seized Octagon’s records and HMRC had said it could not provide them.

Second, HMRC, in its correspondence about deadlines for reviews of the assessments, had been ambiguous. For example, while one email stated there was a 30-day limit to appeal, another stated that the matter could be stayed until Octagon could gain more documentation.  

The Environment Agency’s investigation into the Blaydon landfill site

In 2018, while still responding to HMRC’s investigations and assessments, Octagon faced a criminal investigation concerning its practices at the Blaydon landfill site. 

It’s important to note that, by then, the site was operated by another company under Octagon’s environmental permit.

The Environment Agency’s inspection found that:

• Waste was routinely left exposed.
• Litter had escaped following a violent storm, because the covering was damaged and incorrectly positioned.
  
• In 2018, the site accepted 19 per cent more waste than permitted (487,368 tonnes instead of 409,000 tonnes), despite warnings from the Environment Agency.
  
• Odour from the site could be detected one kilometre away.

The Court held that Octagon and the site’s operator had been negligent, and this was aggravated by the site’s proximity to residential areas and the length of the offending conduct.

In March 2023, Octagon and its director pleaded guilty, and were fined £1,800 and £450 respectively. The operator was fined £70,000.

Blaydon landfill was closed to waste deposits in September 2021. 

The big lesson for accountants from this case

The stand-out lesson from this case is the importance of clear communication.

The Tribunal, in noting that HMRC might face some prejudice in the process of the assessments being reviewed after four years, stated that this was “somewhat self-inflicted. HMRC should have realised that its statements to Octagon [...] were, at the very least, ambiguous”.

Where accountants receive ambiguous or conflicting communication from HMRC, it is important to request clarification. Further, in responding, accountants should ensure that their correspondence is clear.

Unmistakable clarity on both sides can go a long way in preventing unnecessary complexity and confusion in future – particularly if unforeseen events, such as investigations or suggestions of under-reporting, arise.

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