Tax compliance of small business owners: A review

Purpose: Small business owners play an important role in the tax system. This paper seeks to establish a framework to highlight the particular tax situation of small business owners and the resulting implications, from a psychological perspective. Design/methodology/approach: A framework identifying the key characteristics of small business owners' actual and perceived tax situation is established. Literature investigating these characteristics is reviewed in line with the proposed framework. Findings: Three key aspects seem to distinguish small business owners' perceptions of their tax situation: small business owners are likely to perceive more opportunities not to comply than employed taxpayers; they are more likely to experience a lack of meaningful taxation knowledge; and they are more likely to face decision frames that render taxes as painful losses. Research limitations/implications: The suggested link between the subjective experience of the tax situation and compliance calls for a focus on strategies that aim to influence taxpayers' perceptions of their own evasion opportunities, their level of legislative and procedural knowledge, and their sense of ownership of tax money. Such a strategy is suggested to be particularly likely to be effective in the phase of nascent entrepreneurship and in a climate of mutual trust between taxpayers and tax authorities. Originality/value: This paper comprehensively identifies and reviews the perceptual correlates of factors unique to small business owners' tax behaviour.