Nearly a third of software used by UK businesses is illegal, a report by the Business Software Alliance (BSA) has revealed.

According to the BSA study, 29 per cent of business software is pirated, costing the software industry around £1 billion a year.

The BSA warned that not only were firms risking prosecution, but the soaring cost of piracy was harming the UK economy.

The report said that bosses needed a greater understanding of software security to ensure they are operating legally. The report also called on the government to do more to tackle the problem by educating businesses and cracking down on the criminals involved.

Last year, the police were given the power to seize illegal software and all the equipment it is stored on, meaning that many small businesses run the risk of having invaluable IT equipment confiscated.

Those found guilty of using pirated software face the prospect of heavy fines and losing their computers.

Mike Newton, of the BSA, said that the figures were worrying.

“The fact that nearly one third of all business software used in the UK is illegal is a serious concern for the software industry but the effects are a lot further reaching as the impact hits government tax revenues and jobs in the wider IT sector,” he said.