The Institute of Public Policy Research think-tank said the number of people opting to work for themselves has risen by 8 per cent in the past year, faster than any other Western European country.
It means the UK has caught up with the European Union average of 14 per cent of workers who are self-employed and could soon surpass that level.
Taxing: The surge in self employment in the last year suggests many people have realised running their own business can have lots of upsides, but almost alll will agree the downside is dealing with the paperwork
The rise in self-employment in the UK was faster than in France, Spain and Italy, which showed no change in self-employment levels in the year.
But the increase in the number of people opting to work for themselves in the UK was still slower than in Slovenia, Cyprus and Bulgaria, which saw double digit growth in self-employment in the last year, the IPPR said.
The report comes ahead of the release tomorrow of UK employment data for the three months to June.
Last month, the Office for National Statistics said the number of people registered as self-employed rose 404,000 in the quarter compared with a year earlier to 4.58million.
The number of people moving into self-employment is posing a problem for statisticians as well as the Treasury.
For the ONS, average wages are more difficult to calculate as more people move into self-employment. Official employment figures do not currently include self-employed earnings.
Meanwhile, one of the factors affecting June’s public borrowing figures was, according to Treasury officials, a dip in income tax receipts due to the number of people starting their own business.
The government said last month that it expected this dip in income tax receipts to be rectified towards the end of the financial year as people submitted self-assessment forms.
Spencer Thompson, IPPR senior economic analyst, said: ‘Around 2,000 people a month are moving off benefits into their own business. The government’s response to the rise in self-employment has been to praise the UK’s entrepreneurial zeal, while increasingly promoting self-employment as an option to job-seekers.
‘Some have seen it as a negative development, having legitimate concerns whether a lot of the new self-employed are actually employees by another name.
‘The self-employed come in many shapes and sizes. Some are entrepreneurs, driven by high-growth ambitions, innovation and disruptive business models, but many are sole-traders bands simply looking to get by or small businesses happy to stay at their current level.
‘Many older self-employed workers are simply working longer, due to a combination of rises in the pension age and recession-induced falls in the value of wealth stored up for retirement.’
Separately today, the Labour party claimed that self-employed people have been hardest hit by the cost-of-living crisis.
Hard hit: Labour’s business secretary Chuka Umunna said the ‘contribution and endeavour’ of self-employed people needed to be properly considered
It found self-employed jobs have made up two-fifths of new posts since 2010 but that self-employment income has fallen by £2,000 on average.
Its report also showed that gross income from those in self-employment fell by 14 per cent between the 2009/10 and 2012/13 financial years, compared to 9 per cent for those in regular employment.
Shadow work and pensions secretary Rachel Reeves and Labour’s business secretary Chuka Umunna will today call for improved statistics to fully take into account the contribution which self-employed people make to the economy.
And the pair have written to Sir Andrew Dilnot, chairman of the UK Statistics Authority, to ask him to examine whether new measures are needed to that effect. As it happens this also coincides with a once in a generation review being carried out by the ONS.
Mr Umunna said the ‘contribution and endeavour’ of self-employed people needed to be properly considered.
He said: ‘To start out on your own and become your own boss takes grit, determination and energy. Self-employment is increasingly becoming a route people choose to fulfil their dreams and aspirations, while it also offers flexibility for those who want to balance work against other commitments, such as childcare.
‘This entrepreneurial spirit should be encouraged, but worryingly under the Tory-led government the situation has gone into reverse as we’ve seen self-employed people hit hardest by the cost-of-living crisis’
Ms Reeves added: ‘It’s time for David Cameron’s government to do more to help self-employed people to prosper and ministers must rethink their plans to hit the self-employed with unnecessary red tape under new Universal Credit rules.’
Employment minister Esther McVey accused Labour of making ordinary people worse off.
She said: ‘Labour’s Great Recession made people worse off. It was the longest and deepest recession since the war, making the whole country poorer, leaving people vulnerable and everyone financially less well off as a result.’