Escorting is a taxable business activity. That's true whether you are paid for time and companionship, for providing sexual services or simply for tying a naked businessman to your coal bunker with the washing line and thrashing his buttocks with wet stinging nettles
All escorts, whether you work independently or through an agency, are self-employed and you need to register with HMRC (Her Majesty's Revenue & Customs). The easiest way to do that is via their website www.hmrc.gov.uk. You don't need to register before you start work, and in any case it will probably take you a while to decide whether this business is for you. But don't put off registering once you are up and running. You have plenty of time – there used to be a rule that you had to register within 3 months, but you now have at least 6 months, depending on what date in the tax year you start – however things that keep getting put off have a habit of getting forgotten.
You will need to tell HMRC what kind of business activity you are engaged in. Some ladies declare their business as escorting, others use something less obvious and more vague – variations on massage therapist or fitness consultant are popular choices – but whatever you choose to do it will not affect the amount of tax you pay or limit the business expenses you can claim for.
Once you are registered you will have to pay your first (very small) lump of tax. Class 2 NI (National Insurance) secures your right to the basic state pension and it is a flat £2.70 per week (from April 2013, before that it was £2.65). You can choose to pay it either by direct debit from your bank account, or HMRC will send you a bill for £35.10 every 3 months.
Your next responsibility is to fill in and submit a Tax Return form every year. The forms are sent out in early April and you have to give details of your income for tax year (which runs from 6 April to 5 April) that has just ended. You have a choice of 3 ways of sending in your Tax Return:
You can fill in the paper form
You can complete it on-line
Or you can instruct an accountant to complete and submit it for you.
If you fill in the paper form you have to send it in by 31 October. With the other two methods you have an extra 3 months until 31 January. And if you send in the paper form you should get a letter back from HMRC within a few weeks telling you how much you have to pay, while doing it on-line or via an accountant will produce an immediate calculation.
Your tax bill is made up of two elements, income tax and some extra national insurance (class 4 NI). The tax bill for each tax year is normally paid in 3 instalments: a first payment is due before the tax year ends, this is payable on 31 January; a second payment is due 6 months later on 31 July; and a final payment is due the following 31 January. Obviously the tax cannot be worked out before the tax year ends so the first two payments are just calculated as half of the previous year's total tax bill. The final payment the following 31 January is then worked out to bring the total up to the correct figure.
One thing to watch is that when you first start there will be no previous year's tax to use as the starting point for working out the first two instalments. That means you will pay nothing until the final instalment is due, and it could mean a lot of tax to pay in one go. It's therefore important to set aside money each month towards your tax bills. The exact amount you should save each month will depend on the way your work and the level of expenses, and also on whether you have other income such as a full or part-time job. But if you set aside 25% of your income from clients that should be more than adequate. I'd strongly recommend putting it into a separate savings account, and if you want to be really tax efficient you could use a Cash ISA.
Your tax bill will be based on your business profit, which is your business income from which you can deduct allowable business expenses. Among the things that you can include in business expenses are condoms, travel expenses, advertising, and agency fees if you get bookings through them.
You don't have to provide HMRC with a list of your income or your expenses – the Tax Return form only asks for the totals – but you do have to keep records that justify what you put on the form. And if you get a tax investigation HMRC will ask to see your records. If they find that you have unexplained money coming in it will be treated as taxable while you won't get tax relief for unexplained money going out. If you have a good set of records that you write up as you go along you will put the onus on HMRC to try to prove they are inaccurate, but if you have very poor or no records HMRC are entitled to make estimates of your income and tax you accordingly. So it is very important to keep up to date and organised records of all your money coming in and going out.
All this may seem daunting, but you should not feel frightened by HMRC. For the most part they are friendly and behave in a civilised and non-judgmental way. Their main aim is to help you meet your tax obligations and they offer very good free training seminars for new business owners as well as providing telephone advice through their help lines.
This section has been written for us by Jolyon. His website taxrelief4escorts.co.u was an excellent source of information on tax as it affects escorts. It includes advice on the expenses you can claim, a calculator for working out how much tax to set aside and a list of 'escort friendly' qualified accountants. Jolyon frequently picks up tax questions that are raised on the Saafe forum and responds to them on his Blog, but you can also raise questions direct with him. He also produces a bookkeeping diary that fits into a handbag and is specially designed for escorts. Called the Tax Relief Diary, you can get it via his website.