The idea of a Tax Freedom Day is a rather novel concept. You take your yearly earnings and calculate the amount of tax you need to pay annually, then work out from the 1st January how long it will take to pay all that tax. Tax Freedom Day is the day after all your taxes have been theoretically paid.

As a limited company owner, your tax freedom day will come much sooner than the British taxpayer at large. In fact, you’ll be paying off your tax a whole month earlier!

Tax Freedom Day was created by right-wing think-tank The Adam Smith Insitute. In effect, they use it as a weapon with which to lambast governments for the over weighty tax burden carried by the hunchbacked and hungry British taxpayer.

They’ve calculated that Tax Freedom Day 2011 falls on May 30 – two days later than last year – meaning that the average Briton will be working 149 days to pay their taxes.

Tom Clougherty, executive director of the Adam Smith Institute, hectored: 

“The government is right to give priority to cutting spending and plugging the deficit. But as Tax Freedom Day shows, Britons are still desperately overtaxed. The fact that we spend almost five months working for the State – and only seven months working for ourselves and our families – is a shocking indictment of big, wasteful government.”

Dr Eamonn Butler, director of the Institute, put a predictably similar spin on the findings: 

“The coalition should examine the possibility of making targeted tax cuts now to encourage economic growth. But in the long term, they need to fundamentally overhaul the entire tax system. Lower, simpler, flatter taxes would be fairer for individuals, and better for the economy.”

However, if you had a similar day for limited company owners – the date would come somewhat sooner. Take this example:

You’re a contractor earning £120,000-a-year. Approximately £24,000 will be payable as Corporation Tax and £14,000 will be payable as a dividend tax. If you were to solely pay these taxes from the start of the year it will take only until April 27 to pay them all off. In other words Tax Freedom Day is April 28 – more than a month earlier!

Now, these are only estimates, but it paints a clear picture of how running a limited company is the most tax efficient way of running a business. The key to maximum tax efficiency is to pay yourself the right balance of dividends and salary – something which the Crunch online system shows you how to do. So, if you want to lower your tax bill – and have an early Tax Freedom Day – go Crunch!

Read more about Tax Freedom Day at The Adam Smith Institute.