Call for higher taxes for self employed

Institute for Fiscal Studies calls for higher taxes for the self-employed in return for more incentives to innovate.

Employee using a calculator and notepad


The Institute for Fiscal Studies (IFS) has called for higher taxes on self-employed workers and business owners in the UK.

A report from the think-tank points out that an employee in a £40,000 job generates £3,300 more than a self-employed worker doing the same role – and £4,300 more than someone working through their own company.

It says: “The parts of the UK tax system that dictate how different forms of income are taxed are of central importance and are not fit for purpose. There is a large, unjustified and problematic bias against employment and labour incomes and in favour of business ownership and capital incomes.”

It argues that the tax differential between self employed business owner managers and employed people is not justifiable by work-based benefits and rights and that entrepreneurship is poorly incentivised.

IFS researchers said a “particularly attractive” option for reform was combining higher rates of self-employed national insurance contributions and capital gains with more generous allowances to encourage investment.

Helen Miller, the IFS’s deputy director, said: “The government has struggled to get support to some of the self-employed during this crisis. But that doesn’t mean we should permanently keep across-the-board preferential tax rates for business owner-managers.”

Meanwhile, the gaps in support all-party parliamentary group, consisting of over 260 MPs, has called for a new Treasury plan to aid the three million self-employed people excluded from the UK government’s coronavirus support packages.

And figures from the Office for National Statistics (ONS) reveal the death rates from Covid in England and Wales linked to particular professions with frontline workers most at risk. They show that restaurant staff, security guards, people working in factories and care workers are among the professions that have experienced the highest Covid-19-related death rates in the UK.

Nurses are more than twice as likely as their peers to die of coronavirus, but teachers are not at significantly higher risk of death from the virus than the general population. The ONS looked at death rates from coronavirus in England and Wales between March 9th and December 28th 2020. Two-thirds of deaths were among men.

ONS figures out today also show a rise in the number of people out of work in the UK with unemployment up to 5 per cent in the three months to November – a 0.6 per cent rise on the previous three months. Redundancies were also up with estimates for December suggesting a 2.7 per cent fall in the number of employees on pay roll compared with the previous December. There were also 224,000 fewer vacancies than a year ago.

The employment rate for women was down 0.4 per cent on last year and 0.1 per cent on the quarter, compared to 1.9 per cent and 0.7 per cent drops for men. Unemployment was up 1.1 per cent for women compared to last year, with unemployment for men going up by 1.3 per cent. Economic inactivity, which includes for caring responsibilities or illness, was down by 0.5 percentage points for women compared to the same period the previous year, but was up by 0.9 per cent for men.

Joanne Frew, Head of Employment at law firm DWF, said the three months covered for unemployment figures included a period of time when the furlough scheme was thought to be coming to an end and the November lockdown. She said the third lockdown would bring more redundancies, despite the extension of the furlough scheme to April.

She added: “With the CJRS in place until the end of April 2021 and the mass vaccination programme in full swing, it is hoped that this will instil confidence in employers going forward.  If businesses are able to endure the next three months, utilising government support, the employment figures should stabilise.”

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