A DROP of 2.5% in the number of private firms in Scotland “spells trouble” for both the economy and local communities, ministers have been warned.

Official figures showed that as of March 2018 there were an estimated 345,915 such businesses operating in Scotland – a drop of 8830 (2.5%) on the previous year.

The number of unregistered firms – which have a turnover below the VAT threshold of £85,000 a year – fell by almost 5%, with 8720 fewer businesses operating in 2018.

However, the number of businesses that are registered for both VAT and PAYE also decreased in the last 12 months, dropping by 105 to stand at 176,295.

That marked the first reduction in the number of private registered businesses since 2011, Scottish Government figures showed.

Almost all of the 345,915 private firms operating in Scotland were classed as small businesses, having up to 49 employees – with 98.2% of companies coming into this category.

Meanwhile, there were 3925 medium-sized firms, employing between 50 and 249 people, and 2380 large companies, with a workforce of 250 or more.

Small and medium-sized firms provided an estimated 1.2 million jobs across Scotland, according to the report, with the Federation of Small Businesses (FSB) describing these companies as a vital part of the “fabric of Scotland”.

FSB Scotland policy chair Andrew MacRae said: “A decline in the number of Scottish businesses spells trouble for our ambitions for our economy and our local communities.

“To tackle this problem, we need to see more people in Scotland choose to start up in business and develop a business environment which helps local firms thrive.

“In the short term, we need to see a Brexit deal which works for smaller firms, not just key sectoral interests, and a Scottish budget which puts enterprise at its heart.

“In the long term, we need a stronger start-up culture, as well as tax and regulatory systems which recognise the difference between multinationals and family firms.

“These figures also underline just how important smaller businesses are to the fabric of Scotland.

“By giving smaller businesses the best chance to succeed, we can boost prospects for the country as a whole.”