The current UK tax system discourages employment, investment and corporate risk-taking and should be reformed, a report by the Institute for Fiscal Studies (IFS) says.

According to new research conducted by the IFS, employees’ salaries currently attract thousands of pounds more in tax each year than the incomes of self-employed individuals or business owners working through their own company.

The institute said this is mainly due to employees’ salaries being subjected to employer’s national insurance contributions, compared with other incomes which are not.

The IFS added that the tax system discourages investment and taking risks. It said:

“Preferential tax rates on capital gains, dividends and self-employment income are not well targeted at encouraging entrepreneurial risk-taking and investment.”

Stuart Adam, senior research economist at the IFS, said:

“There is no pain-free way to fix the current tax system: any meaningful reform will create losers as well as winners.

“But keeping the status quo is also a choice – one that unfairly penalises ordinary employees and investors, and creates inefficiency and administrative costs that make us all poorer.”

Speak to us about your business.