At the moment there is one personal tax allowance for all forms of employment. It doesn't matter whether the individual in question works for themselves, a corporation, an agency or the government they will only be entitled to one personal tax allowance, which has to be assessed and regulated to the Inland Revenue's specifications.
The division in employment currently acknowledged is between the private sector and the public sector, whether the individual works in the free market or alternatively if they work for the government or local council. I personally think the division in employment should be separated by whether the individual is working in Paid employment or Earned employment.
Paid employment exists;
-When an individual works for someone else who deals with their taxation and financial administration.
Earned employment exists;
-When an individual works for themselves or with others and deal with their own taxation and financial administration.
Most people only work in either Paid or Earned employment rarely both i.e. The individual may work for either a company or as a sole trader. If the individual starts to work in both Paid and Earned employment or work more than one job, they will have to fill in an annual self assessment form or their employer will have to comply to a more vigorous accounting treatment.
By offering two separate personal tax allowances for Paid and Earned employment it enables further tax free earnings and potentially less administration. It also simplifies the process of dealing with tax for the individual and an employer making new business development easier. This encourages individuals to work in both forms of employment.
As most individuals don't work in both Paid and Earned employment, by offering a second personal tax allowance for each form of employment it enables a thriving tax free market economy on top of the existing highly taxed economy. No government revenue is lost but the economy can expand by identifying different forms of employment and providing separate taxation treatments.