How escorts get caught by HMRC and what can be done about it
Just think of the people you annoy when you are beautiful and provide great service; there’s the competition (jealousy) there’s the punters who want extra time / to be your beau – that quickly turns into anger and resentment. Then there’s that bloke who fancies himself as a pimp – so wants freebies and money. Or maybe it’s just a neighbour who hates the noise.
You’ll annoy them all (sooner or later) and if you’re not paying tax you’ll have a weak spot they can stick a knife in.
Also, still on snitching, plastic is the new cash so the moment people pay for stuff with wads of cash it’s like a big red flag with ‘I’m not paying tax’ written all over it.
Secondly it’s a paper-trail
When you put cash in the bank the interest levels are handed over to HMRC – if they see high levels of interest (but you have no sign of having an income) they might just put 2 and 2 together.
The snitching and the paperwork often go hand-in-hand, so somebody will snitch then HMRC will do a search using your national insurance number – it’s not rocket science.
It doesn’t matter if you are a self-employed gardener or a self-employed escort, it’s the same tax law. A gardener can argue that steel toe caped boots and spade are business expenses and an escort can claim for a rubber nurses outfit and enema kit.
You are required by law to pay tax
Yes. Just like everybody else, sorry. If you are earning a small amount of money – below the tax threshold – you may not be required to pay tax, but you should still register, details about tax thresholds here.
It’s a common line of argument to say escorting is illegal so no tax is payable, well escorting isn’t against the law and even if it was you’d still have to pay tax, it’s an argument that goes nowhere.
A second argument runs along the lines of, “Isn’t this a case of our government making money out of immoral earnings?” Listen, HMRC don’t give a shit, they just want the cash. The bottom line is the ‘immoral earnings’ argument just won’t wash.
You can’t get out of paying tax by receiving gifts
Let’s say you are NOT given cash for your time, but a new iPhone, well that’s a payment and it is taxable.
There is also a scam where a card game is set up (it can be poker or snap) then – oh what a surprise – you hit an impossible winning streak and the punter loses a few hundred quid and in a moment of gratitude you fall into bed. No – won’t wash I’m afraid – and it opens up the gambling-without-a-licence can of worms.
You even have to pay tax on tips
Yes, I’m afraid so. Tips count as payments. Serving staff in restaurants either have tips included as part of their wages or HMRC slaps a tax on them they think is right – I know, shocking. But it is what it is.
This is where there are huge tax advantages in being self-employed.
Let’s say you drive to see a punter and that costs £20 in petrol, then you also pay for a hotel room, which costs £80. You charge £200, but you’ve only made £100, you only need to pay tax on the £100 – the amount you’ve actually earned AFTER expenses.
So that’s an easy example, hold on because it’s about to get more complex. To help let’s set expenses out as The Black, The White and The Grey.
The Black: anything you buy and use “wholly and exclusively” for the purpose of business. Examples include advertising, business cards, a business website, condoms, ball-gags, maid’s outfits and handcuffs – none of these things should be used outside business. If you rent a flat (or house) and one room is used solely for work you can deduct a portion of that rent against tax: take the whole rent and divide it by the number of rooms in your building (forget about the kitchen and the toilets).
The White: this is what you can’t claim – don’t even think about it! You can’t claim travel to see a friend and pretend it’s a punter, you can’t claim for petrol for leisure, you can’t claim for a trolley loaded with booze because you once offered a punter a glass of wine. You can’t claim for condoms used with the one you love – and don’t charge. In short if you don’t use it in the business you can’t have it as an expense.
The Grey: so this is where it gets stupidly complex, you can claim for food if you are away overnight (that’s in the black) but if you are away a significant distance you can also claim for food you can also claim (that’s grey). If an item is used for both work and in your personal life it’s called dual use, this is typically a car, which is used for work and leisure or a mobile phone – most escorts have a dedicated phone so this shouldn’t be an issue.
In the event of dual use you can claim a percentage as an expense, this is often a 80 / 20 split, but you should honestly declare actual use, if it’s 50/50 declare it as that.
Now, remember in the white you had a room dedicated for clients, well if there is a duel use, so it’s used for punters and for you to sleep in, you can still claim a percentage of the cost of the room based on the amount of time it’s used, you can also claim a proportion of council tax, heating and electricity.
You can see what a can of worms duality is, in tax investigations one of the first things HMRC looks at is all the stuff you’ve claimed (in the black) and try and drag it into the grey, then they take the grey stuff and try to push it into the white, then they’ve got a case against you.
The best way to get around this is to keep good paperwork, in the event of an investigation it will come in extremely useful, if you are investigated and you don’t have what HMRC call ‘robust records’ you are in trouble.
Keeping proper records
You need to keep a written record of all the money coming in and all the money going out, with evidence like receipts to back-up what’s written.
This is simple to do today (when you can remember what’s happened) but in a month or a year what happened today will seem like a distant smudge on an opaque window. So it must be written down.
And there’s VAT
If your turnover is over £85,000 you have to pay value added tax commonly known as VAT, this is a bit of a nightmare for a self-employed person. You have to charge your clients 20% on top of the fee, which HMRC takes, but in return whatever you buy for the business you can claim 20% back. The VAT investigations department at HMRC are notorious for being bullish nit-picking bastards. If you can operate below the VAT threshold your life will be simpler, however if you are making that sort of money you can probably afford a good accountant to do the paperwork for you. More on VAT from HMRC here.
How to find an escort friendly accountant
Most accountants are professional people and it’s unlikely you are going get some born-again-er calling you Jezebel and pressing a crucifix into your flesh. You are far more likely to be exposed to antique schoolboy quips.
The general advise to finding a good accountant is here, also the good people at taxrelief4escorts.co.uk have started to make list of “professional, reliable and non-judgemental accountants who are willing to take on escorts and other individual sex-workers as clients.” Click here to see the select list.
Here are the ABC tax basics if you are just starting out
Who needs to complete a tax return?
If you pay tax on your earnings or pensions through PAYE (Pay As You Earn) tax is deducted automatically and self-assessment is not usually necessary. But if you have more complicated tax affairs, you may need to complete a self-assessment tax return. This includes the self-employed, company directors or trustees and people who have foreign or rental income.
It also includes employees and pensioners whose annual income is more than £100,000, those who receive untaxed income of more than £2,500 a year, have annual investment income of at least £10,000 or claim £2,500 or more in expenses.
How does it work?
Most people will receive the standard ten-page form, which asks for information on income from savings, investments, state benefits and pensions. It also covers allowances and tax reliefs for which you may be eligible, such as work expenses. There are also nine supplements that you have to fill in if your income comes from elsewhere, such as land and property.
The forms can be completed on paper or online, but you will face penalties and interest charges if you do not complete your form on time. If you think that you need to file a tax return, for example if you have recently become self-employed or a landlord, you must contact your local tax office as soon as possible.
Soon after the start of each new tax year (April 6) the Revenue sends a tax return for the previous tax year to everyone who normally completes one. After that there are some important dates you need to remember:
September 30: the deadline to file your paper return if you want the Revenue to calculate you tax for you in time for the January 31 deadline.
October 31: the final date to file paper returns. If you miss this, you will have to file online.
January 31: final deadline for online tax returns and to pay any tax and national insurance due.
The key to successful tax returns is good record-keeping and allowing yourself plenty of time to fill in the forms. Before you start, you will need to gather all the relevant paperwork.
Tony Levene, author of the Which? Tax Handbook, says: “Before starting, collect together all you need to complete your return. That’s your P60 if you’re employed or receive a pension, plus details of any fringe benefits and expenses. If you are self-employed or have rental income, you will need copies of your accounts and expenses. You will also need your bank statements if you receive interest on your bank account, plus details of any income from investments and savings.”
One of the most common errors is forgetting to sign the form. Also take care not to make basic numerical errors, such as putting a decimal point in the wrong place. Read and re-read the form to ensure that you have not made any mistakes or left anything out. Always keep copies of your return and everything else you send to the Revenue.
You can hire an accountant to complete the form for you, but this will usually cost at least £100.
Fines and penalties
About 10 per cent of taxpayers who have to fill out a tax return are fined £100 by the Revenue every year for failing to meet the January 31 deadline. If your return is still outstanding six months later, you will be charged a further £100.
If you miss a payment, the Revenue will charge interest at 7.5 per cent from the date that the payment was due, as well as a late-payment penalty. If you still have not paid by the end of February, you will be charged a 5 per cent surcharge on the tax due, which rises by a further 5 per cent of the amount due if you still have not paid by July 31.
For help with filling in self-assessment forms, call the HMRC helpline on 0845 9000444 (8am-8pm seven days a week, including bank holidays). For extra forms or help sheets, call the HMRC orderline on 0845 9000404.