Tax burdens on business increase as firms grow, hitting any plans they have to recruit more workers, according to a new report.

The Institute of Directors (IoD) said the UK's smallest companies paid more than 30% of their profits in tax, rising to 40% for larger firms, when national insurance, business rates and road fuel duties were added to corporation tax.

Profits from the first four or five months of the year are taken up in taxes, said the IoD report. A micro firm with five employees would typically pay 117 days' worth of profit in tax in 2012, but if it expanded to 20 staff this figure rises to 140 days, and to 152 days for a workforce of 100.

Richard Baron, head of taxation at the IoD, said: "It may be easy to think that bigger businesses have broader shoulders, but it's important to remember that they only got to that size because someone took a chance on their idea. It is always risky to start, or to expand, a business.

"Entrepreneurs and investors will not put their money on the line if the return after tax is too small. At a time when there are already so many economic risks and unemployment is so stubbornly high, we cannot afford to make it so difficult for businesses to invest and grow."

The IoD report, Tax - the Weighty Burden, said the overall tax burden on businesses was a lot higher than the corporation tax rates of 20% and 24%.

"This has serious implications for the economy. It is risky to start, or to expand, a business. Entrepreneurs will not put their own capital at risk, and other providers of capital will hold back, if the potential rewards are too greatly reduced by taxation.

"A business can expect to have to pay four or five months' worth of profits to the state each year. The position has improved slightly since last year, but there is still a long way to go to create a truly business-friendly tax environment."