The trading environment for SMEs last year was steady but not dynamic, according to a survey by the Small Business Research Trust.
Jobs were lost in three of the four quarters.
The survey, carried out by the University of Liverpool, showed that over the year sales and investment were up, but employment was slightly down.
Sales fluctuated, however, on average three per cent more companies said they had experienced growth than saw a decrease.
SBRT chairman Brian Wolfe urged the Government to lift the burden of regulation and taxation on small businesses.
He said: "When reviewing challenges to growth that smaller businesses have faced, as recorded in our quarterly surveys in 2005, tax and employment regulations have consistently been the main barriers.
"Targets for reducing red tape by 25 per cent over the next five years are certainly ambitious.
"If Government is to achieve these, there needs to be a change in their approach to dealing with the regulatory burdens that are surrounding small business.
"The outlook is uncertain and no-one in business likes uncertainty. The SBRT urges the Government to examine closely the barriers to growth presented in this report."
Claimed to be the largest survey of small and medium-sized enterprises in the United Kingdom, and carried out four times a year, it found that employment, sales and investment were all down compared with the last two quarters of 2004.
Of 33,000 businesses surveyed, the majority reported little change in their business situation.
Companies continue to cite taxation and National Insurance as the main barriers to growth. However, 11 per cent of firms listed the current economic climate as their main concern.
For the small business, with between ten and 49 employ-ees, employment regulation is seen as the most serious business problem.