Green Jellyfish and Dan Neidle

Below is the full report which Tax Policy Associates the left wing think tank says.

I note that no independent verification of any facts was taken, in fact it’s the opinion of Dan Neidle and filed company documents at companies house.

Is Sofies story common ? I am not so sure as with all reality the only verification is that her word was taken as being true, we have asked Green Jellyfish for an opinion and have still not received a response.

The UK loses £1bn each year to fraudulent claims for research and development (R&D) tax relief. We can reveal that one of the firms responsible is Green Jellyfish – one of the largest firms in the market. Green Jellyfish says it’s a specialist in research and development tax relief, and that they help companies claim an average of £32,000 in tax refunds from HMRC. But they claim tax relief that doesn’t exist, and then cover it up with the help of an affiliate, Kirby & Haslam. They’re making £3m a year in profits from ripping off the taxpayer and their own clients.

Update: there have now been arrests.Comments on this post are closed.

R&D tax relief costs the UK about £8bn each year, of which more than £1bn has been identified by HMRC as fraudulent1. This has all been widely reported, but, until now, nobody has publicly named the people responsible for the false claims.

We can identify that one of the largest R&D firms in the market has submitted a series of fake and potentially fraudulent R&D tax relief claims: Green Jellyfish. We have a dossier of clearly fake2 R&D tax relief claims made by Green Jellyfish and its associates. This article focuses on one – where Green Jellyfish’s client/ victim was Sophie3, who runs a small therapy business.

Green Jellyfish promised Sophie a “no win no fee” R&D tax relief claim, but there was never any basis for it, and when HMRC challenged it, Sophie was left with large bills. We believe she was defrauded. In other cases, where HMRC didn’t spot Green Jellyfish’s false claims, it will be the taxpayer who was defrauded.

We believe there is enough evidence for HMRC and the police to commence a criminal investigation, shut down Green Jellyfish’s business, and protect both their clients and the wider public interest.

R&D tax relief

R&D tax relief was created to encourage small companies to invest in research and development. It gives profit making companies a tax deduction which reduces their corporation tax bill, or in the case of loss-making companies the ability to surrender their losses for a cash payment from HMRC.

The term “research and development” is defined in guidance published by BEIS and given statutory force by the Corporation Tax Act 2010. HMRC summarise the rules as follows:4

The Times reported in 2022 about highly questionable R&D tax relief claims, with restaurants being encouraged to claim R&D relief for vegan menus. In our view, claims like this have no legal basis and may be fraudulent.

HMRC has been proactively investigating historic R&D tax relief fraud and making it harder for new fraudulent claims to be submitted. Sadly this has had knock-on effects on bona fide claimants.

Sophie’s story

Sophie runs a small therapy business. In 2021 she had £46k of revenue. She paid herself a salary of £12k, and had a profit of £18k (after other costs and corporation tax).

In 2022, Sophie was cold-called by Green Jellyfish, who said they thought her business could claim R&D tax relief.

As Sophie puts it:

“GJF from the start were persistent but very friendly and approachable, they seemed to know exactly what R and D was about, whereas I had never heard of it before. They were confident that my business could claim and after initial doubts I naively put my trust and faith in them.” 

After the call, Green Jellyfish sent a follow-up email to Sophie saying this:

There is and was nothing on Sophie’s website that suggested any R&D activity. Green Jellyfish was at no point FCA-regulated. 5

And they explained their process:

We don’t believe anyone who’d even casually perused the HMRC website could “safely say that [Sophie would] easily fall within the parameters of the scheme”.

Sophie had no financial or tax background, and trusted that Green Jellyfish knew what they were talking about. She took up the offer of a telephone consultation. During the call, Green Jellyfish asked Sophie about her business and whether she thought it was “innovative”. Sophie said it was6, but didn’t provide much detail about what she did

Green Jellyfish didn’t ask about whether there were any specific R&D projects – it’s pretty obvious there weren’t, and couldn’t be, when Sophie’s business had one employee/director who was a therapist, not a researcher or engineer.

The evidence of fraud

Green Jellyfish then asked for Sophie’s accounts and corporation tax return:

And off the back of that, with no information about any R&D activity, Green Jellyfish submitted an R&D tax relief claim.

We believe this was likely fraudulent for two reasons.

First, Green Jellyfish had no basis for making a claim, because Sophie gave them no basis. They never provided her with any statement of what precisely the claim would be for, much less the kind of report you’d expect from an R&D firm. As Sophie put it to us:

“I remember chatting to Andrew about my business on the phone but I still don’t know what he was claiming for!“

This therefore isn’t a case of Green Jellyfish staff misunderstanding the legislation or guidance. There’s no evidence they paid any attention to the rules at all.

Second, Green Jellyfish claimed Sophie’s entire staff costs as qualifying R&D expenditure.

Here’s Sophie’s accounts for 2021 – we’ve blanked out the last three digits to preserve her anonymity:

Note the staff costs of £12k – the only staff member was Sophie herself. And Green Jellyfish claimed all of that as qualifying R&D expenditure:

This doesn’t survive five second’s scrutiny. Nobody in the business of filing R&D tax credit claims could seriously think Sophie spent absolutely all of her time on qualifying research and development activity.

So why did they claim the entire £12k? We expect that’s because the only way an R&D relief claim for a company of this size would make sense, and justify Green Jellyfish’s fee, is if they claimed 100% of staff costs.

We should add that we can be certain from this evidence that a false R&D tax relief claim was made, but we cannot be certain that a fraud was committed. That depends on whether those involved were dishonest to the criminal standard, which ultimately would be decided by a jury. We set out the criminal standard for fraud by false representation here, and for tax evasion (“cheating the revenue”) here.

But the evidence is in our view sufficient to merit a criminal investigation.

HMRC’s response

Green Jellyfish filed false R&D tax credit claims for Sophie for 2021 and 2022. HMRC immediately paid the refund, and Green Jellyfish took their fee.

A year later, HMRC told Sophie they were opening “compliance checks” into her R&D tax relief claims. That would mean Sophie would have to refund HMRC – and she’d remain out of pocket for Green Jellyfish’s fees.

Why does it work like this? Why couldn’t HMRC have checked the claim before paying the refund?

Because HMRC generally operate a “refund now, check later” policy. It’s a rational approach in a world of normal taxpayers and normal advisers. If HMRC checked first then refunds would take months. And who would put in a fake refund claim knowing that the consequence of getting it wrong would mean paying back the refund, plus interest and penalties?

But, unfortunately, “refund now, check later” creates a loophole for bad actors to exploit. Rogue R&D tax relief firms can file hopeless claims knowing that they keep their fees whatever happens, and that the risk sits with their poor clients like Sophie.

Kirby & Haslam

Sophie told Green Jellyfish she’d received a compliance check, and they passed her to an associated firm7, Kirby & Haslam.

At this point Sophie realised there was something very strange going on. Andrew had left Green Jellyfish, and the firm had no documentation for her claim. There was no report identifying the qualifying R&D expenditure, and not even a summary of her business activity. So Kirby & Haslam wrote to her asking the kind of questions that Green Jellyfish should have asked right at the start (but didn’t):

At this point an honest and competent firm would have realised that Sophie had no qualifying R&D expenditure. Kirby & Haslam took a different approach. They used Sophie’s responses to construct a response to HMRC which tried to claim that running remote therapy sessions during the Covid-19 lockdown was an “advance in science and technology” qualifying for R&D relief:

The idea this was an “advance in the field” is ridiculous, particularly at a time when almost every service business was finding ways to work remotely. We don’t believe any R&D tax expert would believe this claim had any prospect of success.

But the more serious problem is that it was entirely created after-the-event by Kirby & Haslam.

The consequence for Sophie

HMRC unsurprisingly rejected the Kirby & Haslam justification for her R&D tax relief claim (and another made subsequently for 2022). They sent Sophie a letter which explained why in some detail. For example:

This left Sophie with an unexpected bill of over £7,500 to repay to HMRC. That stung – because she’d only received a £4,500 refund… the rest had been taken by Green Jellyfish as their fee.

Sophie says:

“Just before Christmas I received a notice from HMRC that not only was I going to have to pay back the full amount of the first claim made by GJF, they had also found the second claim to be non-compliant, and I would also need to pay this back. I had no idea that HMRC were evaluating both claims so this came as a huge shock. I remember rushing over to my friend’s house in a state of distress, crying at the injustice of the situation and terrified about how I could pay the money back when it had already been absorbed into my business. At this stage my anxiety sky rocketed, and I spent a few days over Christmas feeling sick and stressed. I tried to put on a brave face around my children over Christmas as I did not want them to worry. The situation impacted on my mental health and triggered many negative emotions of fear, anxiety, isolation, anger, hopelessness and despair.”

The lies to escape penalties

At this point it looked likely Sophie would be hit with penalties for submitting a tax return that was “careless”.

Kirby & Haslam wrote representations to HMRC on Sophie’s behalf.

A normal firm in Kirby & Haslam’s position would have been appalled at Green Jellyfish’s original claim, and the representations would have described how Sophie had in essence been defrauded.

Instead, Kirby & Haslam wrote representations to HMRC which lied about the background. Here’s an email from them “correcting” Sophie’s initial answers to HMRC:

None of this was true. Sophie had relied entirely on the claim submission company. Andrew at Green Jellyfish (to whom Sophie had been speaking) was a “Business Development Manager”, not a tax specialist. She didn’t have a “thorough discussion” regarding her project, because she never discussed a project. Sophie had made no effort to understand the R&D tax relief claim criteria because they were never mentioned to her; she didn’t know what they were, or that they even existed.

Sophie was very uncomfortable with Kirby & Haslam’s proposed responses. She told us:

“Kirby and Haslem were pushing to avoid penalties from HMRC, and in my state of fear, I allowed them to talk me out of telling HMRC what I really wanted to say about GJF and their unscrupulous process. I was constantly told that as a company director I was expected to know about R and D and to have paid due diligence to the claim. I am a clinical professional, working in therapy. I am not a tax specialist and I’m rubbish at maths, so of course I couldn’t know the ins and outs of R and D. I had been led by the group of so called “specialists”. But apparently this was not good enough. Kirby and Haslem made me take responsibility for the claim without blaming GJF. I was so angry but felt alone with the problem, so saw no option but to take their guidance.“

Sophie escaped penalties. We think that’s a fair outcome under the circumstances – but it’s deeply unjust that Green Jellyfish and Kirby & Haslam aren’t subject to penalties themselves.

Could it just have been a mistake?

Not according to Green Jellyfish. When Sophie complained to them, they told her their “approach in preparing and submitting claims is always meticulous, based on the information provided to us and to the highest standards of care and skill”.

They refunded their fees for the 2021 claim, but not the 2022 claim (despite their “no win no fee” promise).

And it wasn’t a one-off either. We have a dossier of similar cases, often for much more money: R&D tax relief claims being made by Green Jellyfish on the basis of absolutely nothing, by businesses who realistically could never qualify. And then in these cases we again see Kirby & Haslam coming in after the event, and inventing rationales for the original claim. But at least in Sophie’s case the Kirby & Haslam document described her actual activity; we’ve seen other Kirby & Haslam letters which invent entirely fictitious R&D projects.

Green Jellyfish is not a small operation. Its accounts show that in 2022 it had 38 employees and made a profit of at least £3m.8

How much of Green Jellyfish’s business consists of genuine R&D claims, and how much fake claims? We can’t know. The size of our dossier convinces us there are many fake claims – but we can’t know if it’s 10% of their business or 100%.

We would, however, speculate that what we’ve seen is Green Jellyfish’s standard approach. We say that for several reasons:

• Green Jellyfish’s advertisingconsistently9 says that all you need for a claim is your corporation tax return and accounts.

• Sophie’s experience, and the other businesses we’ve spoken to, was consistent with that. No analysis of any projects, just the numbers in the accounts and tax return.

• Green Jellyfish doesn’t appear to employ any tax advisers. Only salespeople and business development officers. This isn’t how you build a legitimate R&D tax relief business – R&D tax relief is highly technical.

• Kirby & Haslam didn’t seem to think there was anything strange about the absence of any records from Green Jellyfish, or the fact that they were constructing entirely original arguments for R&D tax credit relief.

• Sophie’s complaint was the opportunity for a bona fide company to look at its processes and consider whether her tax relief claim had been properly handled. They instead just lied to her (“meticulous”).

Even if most/all of Green Jellyfish’s R&D tax relief claims are false, we expect some of their clients will be very happy. HMRC are unlikely to be able to identify all the false claims, and some clients will inevitably keep their refunds (even if there’s a criminal investigation).10 In those cases, it’s HMRC and the wider body of taxpayers that lose out.