Last year businesses received tax relief worth £3.5bn to support investment, as more companies took advantage of a scheme designed to tackle Britain’s weak productivity.

The total number of claims made under the research and development tax relief programme grew by 22% between the 2015 and 2016 financial years, new figures revealed. This is largely due to the growth in the number of small and medium sized organisations using the initiative.

It was found that more than five in six tax credit applications in the 2016/17 financial year came from small and mid-sized businesses, which filed £1.8bn of claims in total.

The scheme aims to promote innovation by reducing a company’s tax bill, and businesses can use it to cut their corporation tax by an amount that is equal to a percentage of the organisation’s qualifying R&D expenditure.

However, the definition of qualifying R&D is broad, with the tax credit available to businesses improving any technology for products or processes. The government estimated that that the credit can reduce the cost of development for a small business by as much as 44%.

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