U.K. Self-Employed Get ‘Unfair’ Tax Advantage, IFS Study Finds

  • Britons in salaried jobs are paying thousands more in tax
  • Government losing revenue as more people work for themselves

Britons who work for themselves enjoy “unfair” and costly tax advantages over people in salaried jobs, according to the Institute for Fiscal Studies.

An employee earning 40,000 pounds ($50,000) a year pays almost 3,500 pounds more than someone who is self-employed and on the same income, the research group said in a report published in London Friday.

Arguments made in favor of taxing the self-employed more leniently -- a lack of paid leave and the risks involved in running a business for example -- are no longer defensible, it said.

“The differences in entitlement to state benefits are now far too small to justify the lower rates given to the self-employed,” said Helen Miller, an associate director at the IFS. “And lower rates are not a good way to” foster entrepreneurship.

The government is losing out on billions of pounds as a result of small companies increasing their share of the labor market since the financial crisis, with self-employment now accounting for 15 percent of the total workforce, the IFS said.

It called for income to be taxed at equivalent rates, regardless of whether it comes in the form of wages, dividends or capital gains. Company owner-managers benefit in particular from the present regime because dividends are taxed more lightly than wages, it said.

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