Small Business Taxation. A special study of the structural issues surrounding the taxation of business profits of owner managed firms

Freedman, Judith and Crawford, Claire (2008) Small Business Taxation. A special study of the structural issues surrounding the taxation of business profits of owner managed firms. In: Mirrlees Review. The Institute for Fiscal Studies/Oxford University Press.

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Abstract

This chapter considers the taxation of small, owner-managed businesses. It focuses on the difficulties created by treating employees, unincorporated and incorporated businesses differently for tax and social security purposes. The authors reject blanket tax incentives for small firms and differentiation between legal forms and concentrate on issues arising from opportunities created on incorporation for the conversion of income from labour into income from capital (taxed at a lower rate). Experience in the UK and elsewhere suggests that an approach that relies on defining a sub-category of small businesses will not produce a satisfactory solution. The chapter therefore examines methods of aligning the effective tax treatment of different legal forms: in particular it considers the advantages of combining a Rate of Return Allowance with an Allowance for Corporate Equity, so as to tax income above the normal return to capital at the same rate whether it is described as dividend, capital gain or salary.

Item Type: Book Section
Keywords: Small business taxation, labour income taxation, social security, taxation of income from capital, incorporation, corporation tax, choice of legal form, rate of return allowance, allowance for corporate equity
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 04 May 2012 13:22
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3508

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