Celebrate: it's Tax Freedom Day

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Sunday 31 May is Tax Freedom Day 2010 and before Chancellor George Osborne brings in a set of tax hikes, it's time to have a celebration.

However, this year's Tax Freedom Day falls three days later than last year's due to the reintroduction of the 17.5% VAT rate, according to an study by the Adam Smith Institute (ASI).

Since 1991, the think tank has been working out the first day each year that the average Briton starts working for themselves rather than the taxman.

It does this by working out the proportion of net national income used to pay the total government tax revenue - this year it works out at 40.9%.

The ASI then convert this into the number of days in the year it would take to pay your tax if you did it up front. From this day forward, the rest of your salary for the year would be tax free.

The rise of VAT, which came into effect from 1 January this year, was responsible for pushing forward Tax Freedom Day by one and a half days alone.

But ASI's executive director Tom Clougherty, warns that in future years Tax Freedom Day could be even later:

"Since all budget deficits eventually have to be financed, borrowing should be viewed as deferred taxation. Our government relies so much on debt to fund their spending, that our traditional Tax Freedom Day measure makes them look more virtuous than they actually are. In reality, all they are doing is piling up obligations on future taxpayers," he says.

Income tax presents the biggest tax burden on for taxpayers. In 2010 they will have to pay 41 days to pay it off. A further 27 days is taken to pay off national insurance contributions, and 21 to pay VAT.

5 ways to cut your tax bill:

1. Make sure you are paying the right amount of income tax - check your tax code is correct because it determines how much income tax you pay.

2. If you're a saver, open a cash individual savings account - from 10 April everyone can put £5,100 into a cash ISA, which works just like a savings account but interest is tax-free.

3. If you have investments be sure to use a stocks and shares ISA - you can put up to £10,200 into one, and any gains are free from capital gains tax.

4. Think about inheritance tax planning if your estate amounts to more than £325,000 - for example, each year you can take advantage of IHT-exempt gifts. For a full breakdown look at the HM Revenue & Customs website.

5. Use your CGT allowance - if you make a profit on assets, you currently have a threshold of £10,100, which is exempt from CGT. Anything beyond that is taxed at 18% but this could be changing in the emergency Budget so be sure to use your allowance sooner rather than later.


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