Tech start-ups and other innovative small firms claimed £905 million in cash payments in 2015/16 under the R&D tax credit scheme, according to newly released figures.

R&D tax credits adviser Jumpstart said the sum was a 45 per cent increase on the previous year and described the figure as a "major cash injection for the tech sector".

Under the R&D tax credit scheme, pre-profit or loss-making SMEs can, depending on their circumstances, choose to either carry over their losses until future years or ‘surrender’ them and claim a cash payment from HMRC.

“Cash payments under the R&D tax credit scheme are now a significant source of funding for early-stage tech firms. £905m is equivalent to several major investment funds,” Ian Wolfendale (pictured below), business development manager with Jumpstart, said.

Ian

“The scheme can be a real lifeline for tech start-ups and innovative SMEs trying to develop products and services and which are not yet breaking even. Pre-profit companies like these are the ones which have greatest difficulty attracting investment and any they do receive is likely to come from equity investors.

“For these, R&D tax credits can result in a cash injection which will reduce their reliance on external funding or in some cases, remove the need for it altogether. It can make a big difference to the amount of equity they retain.”

Jumpstart says the increase in SME claims reflects changes which have removed the need for a minimum R&D spend of £10,000 and enhancements to the scheme which have made it even more attractive for small firms.

The number of claims from SMEs which are first time applicants has more than doubled since 2011-12.