Small business confidence was at a four-year low before the EU referendum, according to data from the Federation of Small Businesses (FSB).
A survey from the FSB, conducted before the Brexit vote, also found smaller companies are planning to cut jobs for a second quarter in a row. Members said their profits are falling due to the increased cost of labour and tax burdens.
Only 12.2 per cent of businesses surveyed said they planned new capital investment over the next year - down from 31.9 per cent a year ago.
Mike Cherry, FSB chairman, said the government should push forward on expanding small business rate relief and that the Low Pay Commission should be "especially vigilant" when making recommendations on the National Living Wage rate next year.
For the first time since 2009, the UK economy faces a real chance of recession. To head this off, we need to do everything we can to support small firms to grow, create jobs, and weather the harsh economic headwinds.
Wol Kolade, managing partner at private equity firm Livingbridge, said:
The index highlights the uncertainty felt by small businesses ahead of the EU referendum - which is now set to continue.
These small businesses are the engine that drives the UK economy so it's imperative they get the right support from the government, banks and funding partners to regain their confidence during these uncertain times.