Last week, a think-tank at the Institute of Fiscal Studies (IFS) called for reform to the tax system for the growing number of self-employed people in the UK.

The IFS claimed that the self-employed benefit from £1,240 difference in tax in comparison to full-time employees because of lower rates of National Insurance. The independent research body concluded that the current tax system is “unfair because two people earning the same amount for doing similar work can pay different amounts of tax.”

As an organisation who looks to support startups and freelancers, this outlook itself seems a little unfair as lower rates of National Insurance are designed to compensate people for the fact that there is no minimum wage, sick pay, holiday pay or company pension contributions for the self-employed. But the IFS argues that: “This cannot be justified by what are now only very slight differences in benefit entitlements.”

Rise in ‘Gig Economy’ 

The think-tank’s findings come in response to the rise in the ‘Gig Economy’. The IFS argues that the overhaul is required following figures that 39% of employment growth is down to the rise in the number of self-employed and owner/manager companies.

The IFS suggests that one of the major areas for reform is with company-owner-managers who benefit from an even greater tax advantage than the self-employed as they are able to withdraw dividends which are taxed at a lower rate to income.

Suggested changes to the current system by the IFS include ensuring money put back into the business is kept as deductible from taxable income to encourage investment. After this, they suggest that: “each additional pound of income should then be taxed at overall rates that are the same for an employee, self-employed person, or company owner-manager and regardless of whether it comes in the form of wages, dividends or capital gains.”

Do you think the current tax system for self-employed people and company-owner-managers is fair? Or do you agree with The IFS that reforms are needed? Please leave your comments below.