elrond

Tax For Escorts

23 posts in this topic

Do most WG's actually pay tax? If they did i would have thought they would operate as a "sole Trader" and declare the bare minimum. If the WG in question has employment in a regular job then they would surely just take cash in hand for the part time escorting?

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The site started by Jolyon has been gone for some time, unfortunately.

The vast majority of self employed Indies that I'm aware of do indeed pay tax, how much they declare is of

course a different matter. My own accountant is escort friendly and brilliant with what he does, for instance

I would never have known that I can make a small claim for using my home as an office.

I know that some ladies do the returns themselves and hats off to them, I would rather pay an accountant, since his

fee is a tax deductable expense anyway. B)

Aside from anything else, this is a very bitchy industry and I have always felt that to be up front about it is best,

if anyone comes to my door and says "we believe you are operating as an escort and have not been declaring your income",

I can produce five year's accounts and tell them to shut the gate on their way out.

Ladies who don't register and pay for tax run the risk of the tax people showing up with THEIR estimation of what they

think she has earned and a massive bill to go with it, it is then down to her to prove them wrong. Hassle none of us can

afford, in every connotation of the word.

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I think the key point is that the principles of taxation apply to escorts as they do to plumbers, taxi drivers, accountants or lawyers.

The specifics may differ slightly, but the obligation to file returns is consistent.

In a perfect world all income would be declared and only expenses which are "wholly and exclusivley" incurrred in the course of trade would be deducted to arrive at the taxable profits.

If HMRC suspect that the accounts and self assessment returns do not contain accurate information they have the powers to open an investigation. These can be range from low key questions in letter form, but can extend to a full-scale enquiry. They can force the tax-payer to supply a multitude of documents which they will examine to verify that the income declared is consistent with lifestyle.

They will check passports for evidence of expensive overseas trips, credit card statements, personal bank and building society accounts.

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I think the key point is that the principles of taxation apply to escorts as they do to plumbers, taxi drivers, accountants or lawyers.

Escorts don't need detailed Tax Planning and there are no major loopholes to exploit. Accountants are a big rip off and many that are self employed don't need them, as I eventually sussed out. The biggest difficulty is managing cash that doesn't go through the books.

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Escorts don't need detailed Tax Planning and there are no major loopholes to exploit. Accountants are a big rip off and many that are self employed don't need them, as I eventually sussed out. The biggest difficulty is managing cash that doesn't go through the books.

Register as self employed, pay your Class 2 NI contributions, go and see the HMRC people and pick up their book and leaflets, go on any workshops that they offer you.

Ask them what you cxan claim for.

Keep track of all yours outgoings, keep some books, use Excel, keep all the receipts and record all the details in the spreadsheet.

When you do your self assessement, your turnover is the total money through (in and out) of your business. Your profit is the income minus your justifiable expenses and your tax will depend on what your personal allowance is.

When you complete you SA, HMRC will accept it, neither believing nor disbelieving it and that will determine the amount of tax and NI you pay.

Also, when you do your SA, make use of the comments box. For example, if you claim for a bed, say I have only claimed for 60% of the bed as occasionally it is used by guests.

However, if they do decide to investigate, it is then that you will need all the evidence that you have to prove what you bought, what you were given (benfits in kind) and what your taking were.

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Ladies who don't register and pay for tax run the risk of the tax people showing up with THEIR estimation of what they think she has earned and a massive bill to go with it, it is then down to her to prove them wrong.

Thats not strictly true. Unlike procedes of crime which does work on that exact basis... pluck a figure from the air and double it. The tax man isnt the same... they may well come up with a figure but a good accountant can usually sqaush it... the tax man has to have evidence to show that the money he claims you earnt passed through your hands. You might have to argue it but the onus of proof is on the tax man, not you. In other words if the tax man says you earnt 50k and you say no I only earnt 20k, the tax man has to provide evidence to back up his estimate of 50k. Of course you should have evidence to support your 20k and Im not suggesting they wouldnt argue the toss but despite the fear they cant just pluck a figure out of the air without justification.

That doesnt mean I would recomend anyone go down that route and your right that if you can provide accounts to justify your earning and expenditure they will probably take a quick look and move on saving a lot of grief. The reality is tax investigations usually come about because someone has either grassed you or you have been downright stupid... declaring just 12k a year while paying two grand a month mortgage, driving a posh new car and living lavishly, it doesnt take a genious to figure out you must be earning more than your declaring.

I used to be terrified of the taxman, but they arent actually unreasonable people, unlike the CPS or the VAT man, lol.

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Thats not strictly true. Unlike procedes of crime which does work on that exact basis... pluck a figure from the air and double it. The tax man isnt the same... they may well come up with a figure but a good accountant can usually sqaush it... the tax man has to have evidence to show that the money he claims you earnt passed through your hands. You might have to argue it but the onus of proof is on the tax man, not you. In other words if the tax man says you earnt 50k and you say no I only earnt 20k, the tax man has to provide evidence to back up his estimate of 50k. Of course you should have evidence to support your 20k and Im not suggesting they wouldnt argue the toss but despite the fear they cant just pluck a figure out of the air without justification.

I have to disagree; the burden of proof lies with the tax payer to refute HMRC's determination of undeclared income.

HMRC will not investigate unless they are in possession of facts which are at odds with returns. They will not normally act on vexatious anonymous reports which are not supported by facts and figures. BUT if someone close to you, i.e. an ex-boyfriend or working colleague is able to supply information which can be verified, then you may well be in trouble.

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I have to disagree; the burden of proof lies with the tax payer to refute HMRC's determination of undeclared income.

HMRC will not investigate unless they are in possession of facts which are at odds with returns. They will not normally act on vexatious anonymous reports which are not supported by facts and figures. BUT if someone close to you, i.e. an ex-boyfriend or working colleague is able to supply information which can be verified, then you may well be in trouble.

But thats my point, they wont just pluck a figure out of thin air but will have made an estimation based on some form of fact. They may well estimate your basic living costs on top of what they can see on paper, i.e. credit cards, bank statements etc. What they dont do is just turn up and say we think you owe X amount, now prove us wrong. They have to have some factual information to base thier estimation on or to have even considered investigating you in the first place.

HMRC have a great deal of power to obtain information about you, credit card statements, mortgage information etc. But if your declaring what you earn or at least what you spend you have nothing to worry about. If your living beyond your means as far as your declared income is concerned then you have a problem but its still only a problem to the degree of your actual spending and therefore what you should have been paying anyway.

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But thats my point, they wont just pluck a figure out of thin air but will have made an estimation based on some form of fact.

I'd love to think you are right, but from my own bitter experience, I think that the Revenue (now HMRC) can and do think of a figure, double it, and put it on an assessment, which is what you owe, unless you appeal and show what the true figure is.

I've had two cases, twenty years apart (both my fault):

1) I inherited a flat from my Grand-mother, complete with tenant. Tenant died, and I thought "Yippee!", but it then turned out that, contrary to the terms of his lease, tenant had been living there with his boyfriend, who didn't fancy moving. I eventually had to settle by selling the flat to the tenant at a discount. I was then taxed under PAYE and idly I didn't get a return form and complete it for Capital Gains Tax on sale of flat. Revenue assessed me to tax on the total sale price. It was quite difficult to get them to deduct the cost price to me (probate value on Grand-mother's estate, of which the Revenue had full information), and my expenses of sale.

2) More recently I was one of five joint-vendors of something rather bigger. 4 x 22.5% shares and one 10%. My Capital Gain was pretty clearly going to be pretty nearly the same as my 22.5% co-owner's shares, who had virtuously put in their returns to the Revenue. When I failed to put in a self assessment form, they assessed me for just about twice what we eventually agreed on, and then hit me for a £15k penalty. When I appealed against the penalty, they reduced it to £10k!

If you offend them, they take pleasure in hurting you!

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I am self employed, though not in the sex industry. I had a run in with the tax man a few years ago, when I accidentally failed to follow the rules, and this was not a pleasent experience. Since then, I have worked with the tax people to make sure I get things right. Actually, they are a very helpful bunch who's aim is to make sure you pay the right amount of tax (ie. not too much or too little).

I would recommend anyone self employed, including WGs, contact the tax people as soon as possible and keep good records of what the earn (without clients' names!) and spend. If you are prepared to read the books yourself then you don't need an accountant, but there are lots of them and you have to work out for yourself it's worth the time and effort to do DIY tax returns.

Do any WGs here earn enough (£60k per year) to register for VAT?

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I am self employed, though not in the sex industry. I had a run in with the tax man a few years ago, when I accidentally failed to follow the rules, and this was not a pleasent experience. Since then, I have worked with the tax people to make sure I get things right. Actually, they are a very helpful bunch who's aim is to make sure you pay the right amount of tax (ie. not too much or too little).

I would recommend anyone self employed, including WGs, contact the tax people as soon as possible and keep good records of what the earn (without clients' names!) and spend. If you are prepared to read the books yourself then you don't need an accountant, but there are lots of them and you have to work out for yourself it's worth the time and effort to do DIY tax returns.

Do any WGs here earn enough (£60k per year) to register for VAT?

The figure should read £70k Dave

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Do any WGs here earn enough (£60k per year) to register for VAT?

For their own sake, I sincerely hope not.

If an escort hits the VAT limit, I believe that the full amount (ie, the 70k+) is taxed rather than the incremental. So, if she crosses it by 1p, she is suddenly 12-13k worse off. She would need to bring home another 20k before tax to see any extra cash in her pocket. Additionally, to complicate things, it's 70k in the prev 12 months, so she'd have to be on the ball to make sure she doesn't slip over the limit by accident.

One the other hand, she would be able to claim VAT back on a few expenses. Not really worth it though is it?

I'd advise that the any lovely lady takes some time off and enjoys herself and her hard earned money rather than go anywhere near the VAT thresholds.

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For their own sake, I sincerely hope not.

If an escort hits the VAT limit, I believe that the full amount (ie, the 70k+) is taxed rather than the incremental. So, if she crosses it by 1p, she is suddenly 12-13k worse off. She would need to bring home another 20k before tax to see any extra cash in her pocket. Additionally, to complicate things, it's 70k in the prev 12 months, so she'd have to be on the ball to make sure she doesn't slip over the limit by accident.

One the other hand, she would be able to claim VAT back on a few expenses. Not really worth it though is it?

I'd advise that the any lovely lady takes some time off and enjoys herself and her hard earned money rather than go anywhere near the VAT thresholds.

Obviously thats sensible advice, but I suspect there are some very shrewd and succesfull WGs out there who have brains as well as their bodies, and easily control what earnings appear on their final year end accounts. Just like any business, there is a lot that can be easily slipped away and perhaps due to the nature of 'escorting' its even easier to present a reasonable year end figure to satisfy HMRC, which could be based on an average WG wage. I would imaginge this to be declared between £20-35K tops [sometimes a lot less for W&CTC purposes]. But obviously some/many girls are earning considerably more, so they can do very well if they know where to put/hide/invest their large stashes. Seems a particularly easy game to loose cash if they know what you are doing!B)

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Obviously thats sensible advice, but I suspect there are some very shrewd and succesfull WGs out there who have brains as well as their bodies, and easily control what earnings appear on their final year end accounts. Just like any business, there is a lot that can be easily slipped away and perhaps due to the nature of 'escorting' its even easier to present a reasonable year end figure to satisfy HMRC, which could be based on an average WG wage. I would imaginge this to be declared between £20-35K tops [sometimes a lot less for W&CTC purposes]. But obviously some/many girls are earning considerably more, so they can do very well if they know where to put/hide/invest their large stashes. Seems a particularly easy game to loose cash if they know what you are doing!B)

Don't put in a Swiss bank account though.

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The site started by Jolyon has been gone for some time, unfortunately.

I am in touch with Jolyon fairly regularly and I think it unlikely the site will be back any time soon. It had become somewhat out of date and he has been talking about updating it but it never happened. Lovely bloke, and much the cleverest person I know, but hopelessly unreliable.

But he has revised his book-keeping diary for escorts. The diary for this year and next are now available from here Jolyon's bookshop. And he is still promising a book. If it ever appears it will doubtless be brilliant, but I shouldn't hold your breath.

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I am in touch with Jolyon fairly regularly ....

Next time, please do pass on to him my best wishes.

(Lovely nickname btw :) )

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I'd love to think you are right, but from my own bitter experience, I think that the Revenue (now HMRC) can and do think of a figure, double it, and put it on an assessment, which is what you owe, unless you appeal and show what the true figure is.

I've had two cases, twenty years apart (both my fault):

1) I inherited a flat from my Grand-mother, complete with tenant. Tenant died, and I thought "Yippee!", but it then turned out that, contrary to the terms of his lease, tenant had been living there with his boyfriend, who didn't fancy moving. I eventually had to settle by selling the flat to the tenant at a discount. I was then taxed under PAYE and idly I didn't get a return form and complete it for Capital Gains Tax on sale of flat. Revenue assessed me to tax on the total sale price. It was quite difficult to get them to deduct the cost price to me (probate value on Grand-mother's estate, of which the Revenue had full information), and my expenses of sale.

2) More recently I was one of five joint-vendors of something rather bigger. 4 x 22.5% shares and one 10%. My Capital Gain was pretty clearly going to be pretty nearly the same as my 22.5% co-owner's shares, who had virtuously put in their returns to the Revenue. When I failed to put in a self assessment form, they assessed me for just about twice what we eventually agreed on, and then hit me for a £15k penalty. When I appealed against the penalty, they reduced it to £10k!

If you offend them, they take pleasure in hurting you!

Your first example isn't really an instance of "think of a figure, double it, and put it on an assessment", though. True, it's an example of IR/HMRC putting you through the wringer because you had been too lazy to return your capital gain. But, as you point out, they assessed you on the genuine sale price (not some number they plucked out of the air)!

And it really is up to you to produce evidence of base cost. The fact that your grandfather's probate value was available (to a completely different section of HMRC) is irrelevant; as the Court of Appeal pointed out a few years ago in Langham v Veltema, the law has never been about requiring HMRC to run around finding out information for your convenience, disclosure only means stuff you actually tell them yourself.

And as for your expenses of sale - well, you can hardly expect HMRC to include an estimate of these in their assessment (especially when your complaint is that they make numbers up! :P ).

I agree that your second example certainly appears closer to "think of a figure...". But we'd need more info to make a proper judgement of that.

Going back to the more general point, Sasha is essentially right - HMRC don't just make up numbers based on nothing at all. The numbers they come up with are [required by law to be, and in practice most of the time are] based on what they think the true position is but without making any assumptions in your favour - even where (eg your probate value as base cost) such an assumption might seem obvious.

Illustrious

(25 glorious years in the tax industry :o )

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Maybe The Vicar can give us chapter and verse, But does not Matthew have Jesus linking taxcollectors and prostitutes as persons who will get to heaven?

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