Small businesses across the UK are spending billions of pounds and hundreds of millions of hours navigating regulatory requirements, with many reporting that rules are poorly designed for smaller firms, according to new research from the Federation of Small Businesses.

The study found that compliance costs the UK’s small and medium-sized business sector around £36bn a year, while the time spent dealing with regulation amounts to 379m hours. The burden represents a significant drag on growth, diverting resources away from investment, hiring and innovation.

The report, Playing by the Rules, suggests that the complexity of the regulatory landscape is a major source of frustration. Two in five small businesses said official guidance was difficult to understand, while a similar proportion said it was hard to locate. Only 14 per cent reported receiving timely responses from regulators, and just 10 per cent said it was easy to resolve complaints or concerns.

The findings point to what the FSB describes as a “hidden cost” of doing business, with confusion and administrative pressure undermining the ability of firms to expand. In some sectors, the cumulative effect of regulation is forcing smaller players to exit the market, reducing competition and consumer choice.

The government has pledged to cut the regulatory burden by 25 per cent during the current Parliament. The FSB estimates that meeting this target could save small businesses around £9bn annually and free up 95m hours for more productive use.

Tina McKenzie, policy chair at the FSB, said regulation remained essential but had become overly complex. “Rules are needed to ensure fair competition and protect customers,” she said. “But our research suggests the balance has shifted too far, placing disproportionate strain on small firms and the self-employed.”

The organisation is calling for a more coordinated approach between government departments and regulators. Among its recommendations are extending the burden-reduction target to include tax administration overseen by HM Revenue & Customs and Companies House, strengthening the role of the Regulatory Policy Committee, and improving the clarity and accessibility of guidance for small businesses.

It also urged regulators to work more closely together in areas where multiple agencies oversee similar rules, to simplify compliance and reduce duplication.

McKenzie said previous efforts to streamline regulation had fallen short. “If government and regulators get this right, billions of pounds and millions of hours could be returned to small businesses,” she said, adding that such changes would support growth and help revive economic momentum.