This chapter considers how small, owner-managed businesses are currently taxed and how this might be improved. Our focus is on the difficulties created by taxing different legal forms of business in different ways. Differences in tax treatment across a spectrum from employees to the self-employed (unincorporated firms) and on to companies (incorporated firms) create opportunities for taxpayers to reduce their tax liability and their social security contributions (NICs) by converting income from labour into income from capital.