| By: |
Judith Freedman (University of Oxford);
Claire Crawford (Institute for Fiscal Studies) |
| 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. |
| 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 |
| Date: |
2008 |
| URL: |
http://d.repec.org/n?u=RePEc:btx:wpaper:0806&r=pub |