Smaller firms are being urged to claim the cash rebates they are entitled to as the credit squeeze continues to tighten.

Due to a recent legislative change, the number of companies that can claim a cash rebate in the form of a research and development (R&D) tax credit has increased, according to market watcher KPMG.

To claim a rebate, KPMG stressed, businesses must be loss-making and must qualify as an SME. In August the size limits for what constitutes an SME were doubled – meaning a company should have fewer than 500 employees and either turnover of no more than €100 or gross assets on the balance sheet of less than €86m.

David O’Keeffe, head of the R&D tax credits team at KPMG in the UK said: “There is a cruel irony in denying a business a lifeline that could save it precisely because without such support, it will go bust. The reasoning behind these rules is that Europe does not want tax rebates propping up struggling enterprises. Companies should most definitely make sure that they claim these valuable tax benefits but if they’re really in the last chance saloon, they may be out of luck.”

O’Keeffe added: “When hunting for cash down the back of the corporate sofa, businesses really would do well to remember R&D tax credits. Many are not aware of the changes to the SME definition so don’t realise that they qualify.”

At the same time as the size limits for SMEs were doubled, the value of the R &D tax relief was raised from 150 per cent of qualifying spend to 175 per cent. And for large companies the value of the relief was also increased from 125 percent to 130 percent.

O’Keeffe concluded: “The new limits mean that loss-making SMEs can claim a cash credit worth around £24 for each £100 of qualifying R&D spend – a valuable benefit, especially in the current climate.”