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Tax myths #2 – If I declare my escorting income won’t my employers find out?

Few of us want the details of our personal finances shared with our employers, and escorts have more reason than most for keeping them confidential. If you’re worried that telling the tax man about your escorting business will result in your employer finding out, well you’re not alone. Here’s a question I was asked last week.

Hi I am hoping to start up again as an escort but I am worried about the fact I have another full time job. I cannot tell the other job what I do for obvious reasons, but surely they will find out when I declare other income?

The short answer is no, your employers will not find out. HMRC take taxpayer confidentiality very seriously and they have an extremely good record for keeping private information private. With the exception of the loss of the Child Benefit database some 5 years ago – which was more down to the Benefits Agency rather than the traditional tax departments – there have been no scandals around taxpayer confidentiality. and in over 30 years I can’t recall a single case of HMRC revealing confidential information to someone’s employers.

The only tax information your employers have about you is your name, your date of birth, your NI number, your tax code and any information you choose to give them.

But doesn’t your tax code reveal your other income?

No it doesn’t. If HMRC change your tax code to take into account your escorting income – and I’ll come back in a moment to why they won’t usually do it that way – but even if they do, they won’t reveal why your tax code has changed. You will get a letter from HMRC telling you what’s changed and why, along with an explanation of how your new tax code has been calculated. The letter also gives the name of your employer and tells you that your employer has been given your new code. But all your employer gets is a notice with just four bits of information:

  • Your name
  • Your NI number
  • Your payroll number
  • Your new tax code

They get no indication of why the code has changed.

But if I give my employers a copy of my letter from HMRC surely they will know why my code has changed?

I’ve processed payrolls for lots of small businesses and it’s surprising how often employees tell me their tax code has changed and then hand over a copy of the letter they’ve had from HMRC. You have absolutely no need to do that. Your employer gets notified direct, these days usually by a message in a secure mail box, and doesn’t need to see your letter.

But if my tax code changes won’t my employer guess I have some other income and start asking questions?

Tax codes change for all sorts of reasons and not just because an employee has another source of income. The most common reason is that a small amount of tax has been underpaid two years previously and it is being collected now through PAYE this year. If you’ve ever had benefits in kind from an employer (maybe a company car or private medical insurance) it can take a year or two for the tax system to catch up and in the meantime your tax code can jump all over the place.

And even if you do have another source of income it could be from all sorts of things, and not necessarily from a business. Your tax code could have changed because you’ve been trading in bicycle parts on e-bay, or renting a house to students, or receiving income from granny’s trust fund. Your employer has no way of knowing why your tax code has changed, and in my experience probably won’t give it a moments thought.

There is one final, important thing to add. In most cases your tax code won’t actually change when you register your escorting business. That’s because unless the income is very small, and you ask for it to be collected through the PAYE system, any tax on your escorting income will be payable direct to HMRC. The way that works is that you fill in your tax return, your tax is calculated, the Revenue send you a bill (usually in January and July) and you send them the money. It doesn’t affect the tax taken off your wages, and your employer is not involved at all.

The bottom line is that unless you choose to tell your employer what you get up to in your own time, there is no reason for him to find out.

 

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