Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications Intertemporal income shifting and the taxation of business owner-managers

Intertemporal income shifting and the taxation of business owner-managers

Helen Miller, Thomas Pope and Kate Smith
IFS Working Paper W21/49

We use newly linked tax records to show that the large responses of UK company owner-managers to personal taxes are due to intertemporal income shifting and not to reductions in real business activity. Around half of this shifting is short-term and helps prevent volatile incomes being taxed more heavily under progressive personal taxes. The remainder reflects systemic profit retention over long periods to take advantage of lower tax rates, including preferential treatment of capital gains. We find no evidence that this tax-induced retention increases business investment. It does, however, substantially reduce the tax revenue raised from high income business owners.

More on this topic

Presentation
This presentation was given at an LSE Taxation Seminar.
IFS Working Paper W22/17
This report summarises a project which documents that the dynamics of male and female labour earnings in the UK is substantially richer than typically assumed, and shows that accounting for this richer dynamics is important for the evaluation of welfare benefit reforms.
Observation
The government is restarting ‘managed migration’, the process under which those still receiving legacy benefits or tax credits move to universal credit.
Newspaper article
They might not know it yet, and it is likely to pass the rest of us by entirely, but for more than two and half million families, today is a very big day.