The Institute for Fiscal Studies (IFS) is calling on the government to reform the tax system so that self-employed people and owners of small firms are required to pay tax at the same rate as employees.

The thinktank is arguing that the UK tax system as it is currently set up is not meeting the needs of anyone, with those classified as employees required to pay both tax and National Insurance at higher rates than small business owners or the self-employed. It argues that this is the case even in situations where self-employed people are essentially working in the exact same role.

As the IFS also points out in its report into the issue, this has knock-on economic effects, with the lower tax rate for self-employed people and small firm owners ensuring that tax revenues potentially totalling £15 billion are being lost.

According to Small Business, the report states that:

“There is a large, unjustified and problematic bias against employment and labour incomes and in favour of business ownership. The differential tax rates create inefficiency, unfairness, complexity and revenue loss.”

The report goes on to say that the existing system also brings more difficulties for HMRC, with significant amounts of staff time being used up in ensuring that individuals in different circumstances are paying the correct amounts.

This will not be welcomed by self-employed people and those running small firms, but an accountant who handles tax return services in Goole or anywhere else may be able to find ways of mitigating increased tax costs.