The consulting firm Green Jellyfish is accused of fraud in research and development tax credits

A consulting firm accused of misusing billions of dollars in tax incentives to support science and technology projects has reportedly filed claims from a butcher, a baker and a candlestick maker.

Green Jellyfish targeted companies in sectors that it said were ineligible for the incentives and successfully submitted applications on their behalf for government support that should not have been eligible, sources close to the company claimed.

The Norwich-based consultancy announced last week that an employee had been arrested and released as part of a UK Tax and Customs investigation into “suspected fraud” in research and development (R&D) tax credits.

The company said: “We fully cooperate and support [HMRC] with the investigation, because we have nothing to hide. An employee of Green Jellyfish was “I was arrested and interrogated for almost an hour and then released.”

Before the arrest, the company had been accused by Dan Neidle, a tax attorney and founder of Tax Policy Associates, of submitting “a series of bogus and potentially fraudulent” applications for research and development tax credits.

The regulations are intended to enable companies working on science and technology projects to take advantage of tax incentives to promote innovation. Research and development tax relief costs the UK around £8 billion a year.

HMRC has admitted that the systems were subject to unacceptably high levels of abuse. Errors and fraud in a version of the small business tax relief accounted for an estimated 26 percent of related spending, or £1.2 billion, in 2021-2022, one of the worst performances of any public spending program.

Tax Policy Associates called the scheme a “very costly failure” and estimated the total cost of fraudulent and erroneous claims on the schemes at £10bn in a new analysis.

Last week, eleven people, including accountants, were arrested on suspicion of tax fraud and money laundering offenses relating to research and development tax credits.

The arrests followed a Times investigation in 2022 which revealed that advisers' incentives were being targeted to encourage companies to make dubious claims, few of which were verified by HMRC.

Sources claimed that Green Jellyfish targeted companies in sectors that were unlikely to be eligible.

According to sources, almost 10 percent of customers come from the plumbing and heating sector, while 5 percent are from health and social care. Experts said companies in these industries were unlikely to conduct qualified research.

Other companies that were said to have successfully filed claims through Green Jellyfish, even though they were unlikely to qualify, included a horse breeding company, a Christmas lights company, a company that provides cleaning services and a children's ballet school, according to the sources.

The company's customers also reportedly included a butcher, a baker and a candle maker.

A spokesman for Green Jellyfish said the company “applies detailed controls when evaluating and submitting claims.” Unfortunately, as a criminal investigation is ongoing, we are unable to provide any further comment at this time.”

• Merger of research and development tax credit system “remains flawed”

Tax officials have pointed out that assessing claims is not a black and white process and HMRC said that “the majority of non-compliance is due to conduct other than fraud”.

The Internal Revenue Service has launched a crackdown on the programs and companies have reported problems obtaining the incentives. Neidle said: “The mystery is how this went on for so long and why no action was taken until a Times report in 2022.”

“The shame of it is that there are biotech companies struggling to claim relief for really significant research and development, while invalid claims have cost the country billions of pounds.”

Last week, HMRC said that for the 2022 to 2023 tax year under the Small and Medium Enterprises Scheme, claims volumes had fallen by 23 per cent.

An HMRC spokesman said: “The level of non-compliance we have seen is unacceptable and taxpayers rightly expect us to scrutinize claims.” For this reason, we have increased compliance activities. We do this thoroughly and fairly. We are also taking action against dishonest accountants who encourage or facilitate clients to provide false information about expenses, refunds or tax credits.”