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 5. Tax Nightmares 
 5.1 Being late 
 5.2 Investigations 
 5.3 Criminal prosecution 
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5.1 Being late
Registering late Late tax returns Late payment
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5.1.1 Registering late
Tax
Let's be realistic. Sometimes the deadlines get missed, you've been very busy and forgot or perhaps didn't realise that you should have registered with HM Revenue & Customs within 3 months of starting your business. It happens, and not just to escorts. So what do you do?
graphic  Well, what I don't recommend is that you push the idea to the back of your mind. Partly because in a few months time it will probably come to the front of your mind at about 3 am, but by then problem will be more expensive to sort out.
There is in theory a £100 penalty for registering late, but the HMRC don't always charge it. If you're only a few months late the best thing is to register and send the form in with a short letter explaining why you are late. Or you could just send in the form by itself and see what happens. The worst outcome will just be a £100 fine.
graphic  Things get more complicated if you have left it so long that you have missed the date when some tax should have been paid or a tax return should have been sent to you. These deadlines are 5 October after the end of the tax year when you started and if you miss that as well the next deadline is the following 31 January.  If you haven't registered by those dates then you run the risk of having to pay interest on tax paid late and penalties which can be as much as the tax.
graphic  But whatever deadlines you have missed, the advice is the same: register at once. Although the penalties can be large they will be reduced if you tell the Revenue before they find out for themselves, and if you co- operate to bring your tax affairs up to date as quickly as possible. In many cases the penalties can be very small if you play ball.
VAT
If your turnover is hovering near the VAT registration limit (currently £67,000) it is all too easy to go over it and miss the deadline for registering. The first thing to remember is that VAT works on total business income before deducting any expenses. So it's the total amount you receive from your clients that matters. You also need to know that the limit applies to all businesses in the same ownership. So if you are an escort receiving £35,000 a year from your clients and you are also the sole- proprietor of a chimney sweep business doing another £35,000 of sales, then you are over the £67,000 threshold and you need  to register.
graphic  It is not sufficient to wait until the end of the tax year and add up the income received from clients. You need to monitor the position at the end of each month and add up your receipts for the previous 12 months. so at the end of April 2008 you add up the receipts during the 12 months to 30 April 2008, then at the end of May you add them up for the 12 months to 31 May 2008, and so on. If you find you have exceeded the £67,000 threshold you need to register within 30 days and your registration will take effect from the beginning of the following month.
You can avoid registration if you can convince HMRC that your business turnover in the next 12 months will be below the de-registration limit, which is slightly lower (currently £65,000).
graphic  If you register late then there is a penalty of 15% of the VAT not paid.
Most escorts will want to avoid VAT registration because it has the effect of skimming off the top slice of your income and handing it straight to the taxman.
graphic  But if you discover you should have registered then the advice is to complete the registration form (VAT1) but to make sure you can keep your future turnover below the threshold so you can apply for immediate de-registration.
5.1.2 Late tax returns
The tax year ends on 5 April and within a few days you will receive your tax return form to complete. You have until 31 October to send in your tax return if you want HMRC to calculate your tax bills for you. If you, or your accountant, calculate the tax liabilities then you have until 31 January to get your form in.
Alternatively you can use the Revenue's on-line tax return system which automatically calculates the tax for you, in which case you have until 31 January. There is also a separate, and more sophisticated, on- line system for accounts to submit tax returns on behalf of their clients.
There is no penalty for missing the 31 October deadline. You just won't necessarily know by the time your tax is due how much you owe.
It's fairly well known - because the Revenue get Adam Hart-Davis to tell us every year - that there is an automatic £100 penalty if you miss the 31 January deadline. It's well known but not strictly true. The maximum penalty is £100 or the amount of tax outstanding at 31 January, which ever is lower. So if you don't owe any tax there can't be a penalty, and if you only owe £20 then the penalty is not £100 but £20. If you are charged the £100 penalty and then get your return in late which shows you owe less than £100 then all, or part, of the penalty will be automatically cancelled.
If your tax return is still not in by 31 July then there is a further £100 penalty.
HMRC can also apply to the General Commissioners (a judicial body similar to magistrates whose hearings are held in private) for daily penalties. This starts to get seriously expensive because there is a penalty of £60 for each day you fail to send in your completed tax return, and the penalties are not reduced if it eventually transpires that you don't owe any tax.
Of course charging penalties doesn't get HMRC their tax. So at the same time they can issue a Determination. This is their estimate of your tax and class 4 NI. It's likely to be an overestimate and the tax will be due for payment immediately because the normal due dates for payment of tax will almost certainly have already passed. You cannot appeal against a determination, but provided you get your tax return in within the next 12 months the determination will automatically be replaced by the figures from your return.
5.1.3 Late payment
The general rule is that interest is charged on income tax paid late. The interest rate is designed to be commercial but not penal, and is more expensive than a bank loan or mortgage but cheaper than a bank overdraft. Since 6 January 2008 the rate has been 7.5% which is 2.25% above bank base rate.
graphic  On top of the interest there are also surcharges, which are designed to be penal. The final payment of tax for each year is normally due on 31 January. Interest starts running immediately but there is also a 5% surcharge on anything which is still unpaid at 28 February, and a further 5% surcharge on anything unpaid at 31 July. The surcharges also attract interest.
The Revenue will normally accept payment by instalments and allow you time to pay, rather than immediately jumping in with legal proceedings to recover the full amount you owe. However if you are able to it makes sense to try to clear as much of the debt as possible before the surcharges kick in on 28 February and 31 July.
VAT
There is no interest charged on VAT paid late. Instead there is a complicated system of surcharges which rise from 2% to 15% depending on how frequently you have paid late in the past.
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