As companies across Britain are gripped ever harder by the credit squeeze, cash is becoming more and more important.

And thanks to a recent legislative change, the number of companies that can claim a cash rebate in the form of a research and development tax credit has been boosted substantially.

In order to claim a cash rebate, businesses must be loss-making and must qualify as Small or Medium Sized Enterprises (SMEs). In August this year, the size limits for what constitutes an SME were doubled. SMEs with taxable profits can still claim R&D tax relief but this will be in the form of reduced tax payments rather than an actual cash rebate.

Unfortunately, those businesses most in need of a helping hand, may find that they are unable to claim R&D tax credits as a result of a legal Catch 22. Under the rules, if a business is reliant on R&D tax relief in order to remain a going concern, it is precluded from claiming the benefit.

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.”

Under the new rules, to qualify as an SME, a company should have fewer than 500 employees and either turnover of no more than ??100m or gross assets on the balance sheet of less than ??86m.

David O’Keeffe said: “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 percent of qualifying spend to 175 percent. And for large companies the value of the relief was also increased from 125 percent to 130 percent.

David O’Keeffe continued: “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.”

According to KPMG, some businesses are confused about what sort of activities can count as qualifying R&D spend. David O’Keeffe explained: “Often it’s assumed that only people in white coats working in laboratories will qualify. But this is a misconception, sectors such as banking, insurance companies, retailers and airlines also undertake qualifying R&D and we have made successful claims for many companies in these sectors.”

An R&D tax relief claim can be sizeable, depending on the amount of qualifying spend. For example, KPMG successfully claimed relief of ??900k for just one year for a ??95 million turnover SME.