A new study has claimed the Treasury’s working tax credit is adding an average of five per cent to small business payroll costs.

One of the academics who carried out the research said that small businesses are being burdened with "more and more" of the costs and bureaucracy of government  initiatives.

The study was funded by the Economic and Social Research Council (ESRC) and carried out by University of Bath researchers.

"Smaller businesses are feeling the pinch of several new government initiatives," Bath academic Michael Godwin told ePolitix.com.

"Employers are having to do deal with the red tape of more and more of these initiatives."

Tax 'tinkering'

Gordon Brown has faced persistent criticism that his "tinkering" with the tax system is creating hidden costs for business.

Tax credits have been a major plank in the government’s campaign to get more people into work, but the system has met criticism from business leaders over the costs of implementation.

The research puts the annual cost to employers of payroll administration, including administering tax credits, from between £20 per employee to £100 and over. Costs tended to fall as the size of the payroll increased.

The chancellor has said that he will look at having the working tax credit being paid directly to the employee by Inland Revenue to reduce costs.

However, Godwin said that businesses will still have to deal with the paperwork.