SMALL businesses in Scotland are now more confident than their counterparts across the UK as whole, with recruitment intentions at their highest level since the first quarter of 2010, a report has found.

The Scottish Small Business Index, compiled by the Federation of Small Businesses (FSB), rose by eight points to 44 in the second quarter.

The result reflects a significant hike in small-business sentiment in Scotland compared with the same quarter last year, when the index was measured at nine.

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Around half of the 243 FSB members in Scotland surveyed for the report said they expect their business prospects to improve over the next three months, with 12 per cent expecting conditions to deteriorate.

The growing optimism is reflected in a fall in the percentage of small Scottish businesses running below capacity, from 52 per cent at the start of the year to 46 per cent in the last quarter.

The UK index rose to 39.7 points from 35.7 over the first quarter, while the percentage of UK firms expecting conditions to improve held steady at 47 per cent.

The FSB index comes as a separate report shows companies in Scotland expect to grow revenue by 4.6 per cent in the next 12 months, adding 2 per cent to their growth of last year.

The survey found more than half (54 per cent) of Scottish firms feel confident about their trading outlook, with more companies in Scotland (63 per cent) planning to take on apprentices than in any other part of the UK. It also suggests UK enterprises are growing faster than their counterparts in Germany, France and Italy.

The report, authored by professor Stephen Roper, of Warwick Business School for GE Capital, found the average UK mid-market company expects to grow sales by 6.1 per cent in the next 12 months. This compares with 4.8 per cent in Germany, 3.8 per cent in Italy and 3.4 per cent in France.

The report projects revenue for UK mid-market firms will grow by £133 billion for the next 12 months. And it suggests UK companies plan to take on more staff than their counterparts in Germany next year, 326,000 versus 150,000, as they respond to increasing sales.

But the report cautioned that UK firms are starting to find it difficult to find staff with the right skills.

While last year's report showed UK firms closing the gap on the German Mittelstand, this year's shows them outperforming their German counterparts on a range of indicators.

This year almost half (48 per cent) of UK companies said they planned to expand into new markets in the next three years, compared with 40 per cent in Germany.

Meanwhile, it has been claimed the UK's thriving middle-sized businesses (MSBs) are being held back by the tax system. A report by the Confederation of British Industry and Grant Thornton states the tax system is disrupting cash flow, absorbing management time and dampening export ambitions, and contends that MSBs are unable to navigate tax rules as well as their larger counterparts.