Considerable tax advantages enjoyed by freelancers in highly paid roles has driven the rise of self-employment in Britain, according to a new study.
The report, from the Resolution Foundation think tank, found that 60 per cent of those registered as self-employed since 2009 were in such highly paid sectors. Freelance roles in advertising increased by 100 per cent in the past eight years.
The organisation assessed recent growth in self-employment to conclude that “privileged” sectors with higher wages, such as banking and the public sector, had created two distinct “tribes” of self-employment in the UK, with low-paid gig economy workers remaining in “precarious” employment.
According to the analysis, a primary advantage lay in the exemption of National Insurance (NI) contributions. The NI tax benefit is set to cost the Treasury £6bn a year by 2020, with almost 60 per cent going to the privileged sectors.
Illustrating the tax advantages of the highly paid self-employed, the study cited the example of a freelance worker costing a business £100,000 per year that enjoys a £7,000 tax benefit over a full-time employee on the same salary.
In contrast, the low paid self-employed in insecure roles are forced to absorb the double hit of minimal tax advantages from low salaries, as well as missing out on workplace benefits such as the National Living Wage, sick pay and maternity leave.
Further disadvantages uncovered in the report between the two strands of self-employment found that workers in lower paid sectors were less likely to receive training at work or own their own home.
The Resolution Foundation recommended that the revenue generated from tax advantages be used to support lower income households and even the playing field.
Commenting on the study, Adam Corlett, economic analyst at the Resolution Foundation, said that the growth in the self-employed workforce had been the “biggest jobs story” of the past ten years.
Corlett suggested that while the debate has focused on insecure work in the gig economy and poor social security of freelancers, the reality was that rising self-employment in lucrative sectors had created a clear dividing line in the self-employed workforce.
“Behind the headlines the real recent growth area for the self-employed has been in lucrative sectors such as advertising and banking. This rise is driven in part by a very favourable tax treatment worth thousands of pounds a year to higher earners – just one element of which is set to cost the Treasury £6bn a year by the end of the parliament,” he said in a statement.
With the Taylor Review underway, Corlett added that the government needed to support those in insecure roles by levelling the playing field on tax advantages.
“With the number of self-employed workers approaching five million, we need to start addressing some of the challenges it brings. This should include more security for workers at the bottom end of the market, but reforms should also reduce the unfair tax advantages that the wealthy self-employed particularly benefit from,” he concluded.
Find out in which sectors freelancers are most likely to be asked to work for free
Sign up to our newsletter to get the latest from Business Advice.