Over 50% of small businesses admit to either reducing the number of people they employ or even avoid employing more people because of the concern over the increased burden of paperwork.

That is according to a recent survey Mentor, the advice service from NatWest.

Even more concerning is that when firms make the decision to become employers, a third choose to restrict or even reduce the numbers of staff they employ.

On average, small businesses spend 3.2 hours a month dealing solely with employee related paperwork, with a fifth admitting to spending well over 5 hours on employee regulations.

Those firms operating in the hotel and catering sector spend an average of 7 hours dealing with employee related paperwork, compared with only 1.3 hours for those in wholesale.

Small businesses spend an average 13.2 hours a month dealing with all government regulations and paperwork, although this almost doubles for those businesses with over 11 employees, which spend 26 hours a month on compliance related paperwork.

The transport sector reports the largest burden when it comes to regulatory paperwork. An average business spends 29.1 hours a month and 33% admit to spending between 31 and 50 hours a month completing the necessary paperwork.

Taxation, however, is the biggest concern for Britain's small firms, with 40% saying that they spent the most time dealing with VAT and 25% dealing with PAYE.

Diane Christie, Head of NatWest Mentor Services, said: "The time that it takes to comply with government regulations is clearly a top priority for small businesses, although many agree that the regulations are necessary.

"It is concerning however to see that small firms are thinking twice about employing more staff, and have even reduced jobs because of the amount of regulation involved."