Many small and medium-sized enterprises (SMEs) are not taking advantage of research and development (R&D) tax credits, according to a new study.

Research by consultancy firm KPMG revealed that less than half of businesses polled had applied for such credits, while less than one-quarter said they felt they understood the system sufficiently.

In addition, the survey found that many SMEs do not understand that the tax relief can be claimed by firms in a wide range of different industries.

David O'Keeffe, head of KPMG's R&D tax credits team, said: "Companies are turning their backs on what is effectively free money.

"Our findings clearly demonstrate the widespread lack of understanding of the huge breadth of the definition of R&D in the tax legislation."

Firms should investigate their options as soon as possible to maximise their tax relief, he added.

Some 19,000 SMEs had claimed R&D credits up to 2006, according to HM Revenue & Customs.