Despite spending less time on paperwork, UK's small businesses still notch up 500 million hours a year filling out government forms.
The average SME now spends 26.7 hours per month c ompleting paperwork, according to research from NatWest and the Open University Business School.
However, sole traders are spending less time on Government compliance. The average one-man band spends an average of eight hours a month on paperwork, compared to 8.4 hours in 2005.
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But the figures are still much higher than for employ-ees of larger companies, who spend only 1.5 hours per employee (1.8 hours in 2005) on form filling.
The overall average time estimated to be spent on compliance and red tape by small businesses has also fallen from 4.2 hours per person, per month in 1999 to 3.7 hours now. This figure is also fractionally down on the 3.8 hours reported in 2003 and 2004.
Despite this, 56 per cent of those surveyed think that the time taken to deal with red tape has increased over the past year and hardly any that it has decreased.
In the West Midlands, VAT creates the most time-consuming paperwork for 58 per cent of small businesses, closely followed by the payment of employees, in particular taxation and National Insurance.
Employment laws - especially health and safety regulations - continue to have a detrimental effect on the growth of small businesses. Around 44 per cent of small firms reported that employee health and safety regulations had a significant impact on their business. This is up from 39 per cent in 2003 and 2004.
More than half of small firms also reported that the burden of red tape had an effect on their employment levels.
Just less than a third (30 per cent) said they had avoided employing more people. A further 32 per cent - the largest figure in the UK - said they had reduced staff numbers because of the burden of employee regulation.
Even more concerning was that 45 per cent of firms with no employees had made a conscious decision not to hire staff to avoid this type of regulation completely.
Professor David Walker of the University of Birmingham Business School, said the survey tied closely to his own research.
"This backs up our study of 3,000 small businesses in the Birmingham and Worcestershire central technology belt,"
he said. "About a third are not taking on staff to avoid being overwhelmed with legislation.
"The problem is that, unlike large companies, small business owners can not employ people to deal solely with paperwork,."
Professor Walker also said the Government must look again at its VAT threshold.
"VAT is a big source of complaint for small business, with three quarters of the firms we studied wanting to see the #60,000 threshold doubled," he said.
"We even have evidence that a small minority keep turnover below the #60,000 mark to avoid dealing with the masses of paperwork VAT creates."
Pete Ferns, director of Nat-West Business Banking, said: "The Government needs to look closely at what it can do to encourage growth in the small business community and cutting the amount of red tape, could be the way forward. Small businesses are the engine room of our economy and their success is paramount for the overall economic prospects of the UK."
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