The Institute for Fiscal Studies (IFS) has released a report which suggests that self-employed individuals have an unfair tax advantage over employees.
The report says that the tax system treats the self-employed, employees and owner-managers differently and these differences are inefficient, costly and unfair. The report says that company owners can take income from their companies as dividends rather than wages, allowing them to achieve even lower tax rates.
However, the report has received criticism from representatives of the self-employed who fear that the report will reinforce misconceptions about self-employment.
Employees represent 85 per cent of the total workforce, but according to the report the tax system is far less favourable to them than it is to the 15 per cent who work for themselves.
The report does acknowledge that during the last 8 years almost 40 per cent of the growth in the workforce has come about due to an increase in the number of people working for themselves or running their own companies. Some of this growth is due to the gig economy, but this is not the whole story.
The IFS said: “Giving lower tax rates to individuals who work for themselves is costly. The Office for Budget Responsibility estimates that rapid growth in the number of small companies will cost the Exchequer an additional £3.5 billion in 2012-22, relative to a world in which the small company population and employment grew at the same rate.”
Chris Bryce of the IPSE freelancer group responded: “To suggest the self-employed are somehow operating to the detriment of other workers is ludicrous. It’s no coincidence that as the numbers of self-employed have risen, we’ve drawn closer to full employment overall.”