Small businesses are spending 500 million hours a year filling out governmental paperwork and meeting regulations, according to a new survey.

A SERTeam Quarterly Survey of small British businesses compiled for NatWest bank revealed the average small business spends 26.7 hours a month completed the required government paperwork.

The amount of red tape seems to be worse for sole traders as an average one-man-band company will spend eight hours a month on paperwork whereas a larger company will spend just 1.5 hours a month per employee on government forms.

Over half of those surveyed (56 per cent) felt the time taken to complete paperwork had increased over the past year.

When it came to the most time consuming elements of red tape, 62 per cent of employers blamed VAT for taking up the most time, while 56 per cent said it was working out employee contributions for tax and national insurance.

VAT is also dependent on the size of the company as those with a low turnover will be below the £60,000 threshold making them exempt from registering.

Pete Ferns, director of NatWest business banking, said: "The government constantly 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."