Self-Employed Shoulder Unfair Portion Of UK Tax Burden

by Caroline Maxwell, Tax-News.com, London

04 February 2003

The Federation of Small Businesses on Monday released a report which showed that self-employed taxpayers in the United Kingdom can pay up to 32 times more tax than their incorporated counterparts.

Citing figures from the Institute of Fiscal Studies (IFS), 'The Self Employed versus Incorporated Businesses' revealed that: 'On profits of £15,000, a self employed person pays a combined income tax and National Insurance (NIC) bill of £2,884, 32 times more than the £91 paid in corporation tax by a limited company.'

Whilst welcoming measures contained within Gordon Brown's 2002 budget which dramatically improved the situation of many of the UK's small businesses, the FSB suggested that the advantages should also be extended to the nation's 2 million self-employed taxpayers.

'A tax system should not create a competitive advantage for one type of business structure over another. Whilst limited company status may suit some businesses, incorporation in itself is not an encouragement to enterprise and entrepreneurs should have the right to retain the freedom and independence of being unincorporated,' Neil Hamper, head of the FSB's Taxation Unit explained yesterday.

Mr Hamper also suggested that there may have been a hidden agenda behind the government's decision to grant generous tax breaks to small companies, given that incorporated businesses are somewhat easier to regulate.

'The Inland Revenue certainly finds it easier to collect taxes from companies than from the self-employed. Incorporation gets everyone into the same, well-regulated basket. If our suspicions about a hidden agenda are correct there is a danger that once greater numbers incorporate there will no longer be a reason to retain this generous tax regime,' he warned.

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