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Before your tax bill
can be calculated you need to work out how much you've earned. So
it's time to look at what makes up your business income and what
expenses you can take off to arrive at your business
profit.
Income tax and NI are
annual taxes. They are charged on what you have earned in each tax
year. In principle you can prepare your accounts and work out your
profit up to any convenient date each year but it's usually easier,
and a lot less confusing if your accounts year coincides with the
tax year. Unfortunately the tax year ends on 5 April, which is
plainly silly so HMRC are quite happy for you to do your accounts
up to 31 March each year and pretend it's the end of the tax
year.
Put simply, your
profit each year is your business income less your allowable
business expenses. Or, more obtusely, your profit must be
calculated so as to give a true and fair view in line with UK GAAP
(UK Generally Accepted Accounting Practice) and the FRSSE
(pronounced frizzy, and standing for the Financial Reporting
Standard for Small Entities) unless they conflict with tax
legislation.
If you want to know
why the tax year starts on 6 April you need to read
The tax year. And if you want to know all about UK GAAP and the
FRSSE you need medication. |
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There's not much
difficulty in calculating an escort's business income: it's simply
everything she receives, in the envelopes discreetly slipped to
her, in exchange for her time and companionship (or
whatever.)
If you work through a
parlour the typical arrangement is that you receive the punter's
payment and then hand it all to the maid for safe-keeping. Then at
the end of the shift you get back your share after the house
percentage and the maid's share have been deducted. Your income is
the total amount initially paid to you by the punter, while the
deductions for the house and the maid are allowable expenses. The
end result is the same unless you are VAT registered or ought to
be.
Escorts working
through an agency usually get the full fee from the punter and then
account to the agency for their booking fee. Again the total fee
paid by the client is your business income, and the agency payment
is an allowable expense.
Cash tips should also
be included in your business income.
Payments in kind are
included in business income but small gifts of things like flowers,
chocolates, underwear or perfume would not normally be taxable. But
they must be gifts and not part of the agreed fee. So announcing on
your website that your normal fee is £300 but you'll give a
freebie in return for cup final tickets is asking for trouble. And
large and expensive gifts (cars, boats, expensive jewellery) could
raise a few eyebrows at the tax office. If you routinely sell all
the gifts receive in e-bay I can see HMRC arguing the proceeds are
part of your business income.
 I know of one
dominatrix who has a section on her website inviting worshippers to
'adopt' her household bills: council tax, TV licence, student loan
repayments etc, all of which are listed in detail with amounts and
in some cases the 'name' of the person who has adopted the bill.
Without a doubt, that is going to be taxable.Of course there is no
problem with receiving hospitality as part of a booking. So you
won't pay tax on the cost of a punter buying you dinner, taking you
to the opera or flying you both to Lapland to visit
Santa. |
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So, what business
expenses will the Revenue let you take off your total income? The
two rules, in tax-speak, are that you can claim for any expenses
that are 'wholly and exclusively for the purposes of the business'
and the expenses must be 'revenue and not capital' in
nature. There are also some expenses, like business
entertainment, which are specifically prohibited from being
allowable.
 The wholly and
exclusively rule means that any expenses which have a mixed
personal as well as a business purpose are not allowable. The
classic example is clothing. Although you may say that you only
ever wear business suits for work, the Revenue will argue that
there is a mixed business and personal purpose because you also
wear this clothing to keep warm and for reasons of personal
decency.But expenses don't
have to be necessary to the running of your business, or even
commercially sensible, in order to be allowable. For example you
might decide to spend £10,000 on professional photographs for
your business website. It's clearly not essential to your business
that you invest so much, and it might be extremely bad value for
money, but it's also clearly wholly and exclusively for the purpose
of your business, so it's allowable.
The revenue and not
capital rule means that you can't get tax relief on the cost of
acquiring an asset of continuing benefit to the business. That
might include the cost of buying a car or having a blacksmith build
dungeon equipment for you. There are separate rules which allow you
to claim relief on capital expenditure. Of which more
later. |
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 Anything you buy and
sell on to your clients. For example if you sell worn knickers
to your clients then the cost of buying them is allowable.
Obviously you also need to include the money you receive from your
client as part of your income. Payments to your
driver. You ought to make sure he recognises he is self employed
and needs to tell HMRC about his income from you. A receipt from
him would be nice, but if he doesn't want to declare it you can
hardly claim tax relief. And if your driver is your partner there's
no point in paying him if he's already a tax payer - you'll get the
tax relief but he'll have to pay about the same amount in extra
tax. Rent for any flat or
accommodation you pay for and use just for
business. And if you use a flat
just for business you can claim for any council tax, water rates
and heating and lighting bills that you have to
pay. If you work from home
you can claim a proportion of your council tax, water rates and
utility bills.
Advertising Agency
fees Photography for
advertising Web-site
maintenance Telephone - the
business proportion Internet
charges Bank charges if
they're for a bank account you just use for
business Travel expenses for
business journeys - e.g. train fares, taxis, car parking. Of course
you must have paid for them. You can't claim for an airline ticket
if the client paid for it. Subsistence. If you
are working away from home and have to stay overnight then you can
claim for the reasonable cost of hotels and subsistence including
lunches. You do of course have to actually pay for the cost before
you can claim tax relief - you can't claim for an evening meal if
your client paid for it. If you are not staying away from home
overnight you can still claim for modest lunch expenses if you
habitually travel on business or make occasional business
trips. Protective clothing -
unless you get them free from the GUM clinic! Uniforms. Clothing is
a bit of a minefield because the Revenue take the view that most
clothing isn't bought 'wholly and exclusively' for the business but
also for the personal benefits of warmth and modesty. Protective
clothing is fine, so you can claim for the steel toe-capped boots
and the boiler suit. But there's a problem with everyday clothes
even if they're clothes you wouldn't otherwise choose to wear -
there is a legal case (Mallalieu v Drummond) where the House of
Lords threw out a claim by a female barrister who said she only
bought black clothing for work because, being blonde, black didn't
suit her. So my advice would be to claim for uniforms (the pvc
nun's habit and the traffic warden's rubber tunic) but not dresses
and lingerie that you might wear outside work. And if you are a
barrister, as well as an escort, you can claim for a barrister's
wig and gown. Similarly the cost of
entertaining is not normally allowable. However if part of the
package you are selling to your clients includes entertaining him
then the cost would be allowable. So if you advertise that as part
of your service you will cook him a three course lunch while
dressed only in stockings, suspenders and high heels then the cost
of providing his lunch would be an allowable expense. But if as
part of an evening date you buy a round of drinks that would not be
allowable. Make-up etc is likely
to get caught by the wholly and exclusively rule. The best plan is
probably to have a separate bag of work
make-up. And last, but by no
means least: accountancy fees are allowable. |
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 Payment of wages to
yourself. Your £2.30 a
week NI contributions.
Bribes. Payments in response
to threats, blackmail or extortion.
Fines. Membership fees for
the gym. It may be important to your business that you keep fit but
the Revenue take the view that it's not wholly and exclusively for
the business. Similarly you can't
claim for hairdressing, manicures, colonic irrigation or plastic
surgery. Health insurance,
accident insurance, income protection insurance or life
insurance. Childcare and
baby-sitters. Vibrators. My careful
observations strongly suggest there is a personal benefit to their
use. |
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 Almost certainly you
can't get tax relief on cosmetic surgery, but the HMRC Business
Income Manual does hold out the possibility of getting relief if
you can demonstrate that the surgery does not have a private
purpose. What the Manual giving advice to tax inspectors actually
says is:
Where a person in the public eye claims a
deduction for the cost of cosmetic surgery to correct some
perceived inadequacy in their appearance then you need to examine
whether one of the purposes in incurring those costs was to gratify
their private wish to improve/change their appearance. If it was,
no deduction will be due. Only in exceptional circumstances will an
operation to change personal appearance by reversing or masking the
advancing of the years not have a private purpose. You should
invite the Commissioners to infer the existence of a private motive
unless there is compelling evidence to the
contrary.
In most cases cosmetic surgery will at the very
least boost self-esteem and may improve your private life. Breast
augmentation, face lifts or tummy tucks are all going to have at
least some element of private purpose and are not going to qualify
tax relief. But what about Lindi St Clair's inspired question to
the tax inspector who was sent to interrogate her? Could she get
tax relief on the cost of having her tonsils removed so as to
improve her oral technique? It's hard to see much personal benefit,
and provided there was no medical reason for a tonsillectomy, I'd
say there's a good case for saying yes. Sadly Lindi's biography
doesn't record what answer, if any, she was given at the
time. |
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The system for getting
tax relief on capital expenditure is changing radically from 6
April 2008. By capital expenditure we're talking about the cost of
plant, equipment and assets of continuing use to you business.
That's likely to include such things as dungeon equipment, your
work computer, and if you have a flat which you use exclusively for
business it will include the furniture.
What follows is an
extremely simplified account of what is a very complex and fiddly
area, so if you're buying, or indeed selling, a lot of capital
equipment it's well worth getting professional advice to ensure you
get all the tax allowances you're entitled to.
For expenditure before
6 April 2008 you will get (as a small business) a capital allowance
of 50% of the cost in the year you buy the equipment. The following
year you will get an allowance of 25% of what's left. Then each
year the balance of unrelieved cost reduces and you get 25% of what
remains.
If there is any
private use then the capital allowance is restricted. So, for
example if only 80% of your computer use is business related you
will only get 80% of the allowances.
The position is much
simpler from 6 April 2008. Any unrelieved expenditure brought
forward from earlier years will still get annual allowances, but
reduced from 25% to 20%. However you will get tax relief in full on
the cost of any capital expenditure up to £50,000 each
year.
An example may make
this a bit clearer.
If you pay a carpenter
£2,000 to build you a luxury set of finest mahogany stocks,
and he delivers them after 6 April 2008 then you can claim the full
cost by reducing your 2008/9 profit by
£2,000.
However if you got
them two years earlier in May 2006 then the capital allowances you
can deduct from your profits are as follows:
in 2006/7 a first year
allowance of 50% = £1,000 - leaving £1,000 to carry
forward
in 2007/8 a writing
down allowance of 25% x £1,000 brought forward = £250 -
leaving £750 to carry forward
in 2008/9 a writing
down allowance of 20% x £750 brought forward = £150 -
leaving £600 to carry forward
and so
on.
If you
sell |
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If you use your own
car for business travel there are two methods you can use to
calculate how much you can claim.
 The first thing to
say about business mileage is that if you run your business from
home, even if you never do in-calls, then travel from home to a
client meeting qualifies as a business journey, but if you are
based in a parlour then travel from home to work is a private
journey.If your business
turnover (total income before taking off any expenses) is more than
the VAT threshold (£67,000 from 1 April 2008) then you will
have to use the strict method.
The strict
method
This involves a lot of
careful book-keeping and calculation. You need to keep a record of
all your business journeys and your total business plus private
mileage each year to enable you to calculate the business
proportion. Then you add up all the expenditure on running your car
including petrol, insurance, servicing and car tax. You can claim
as a business expense the business proportion of all these
expenses.
On top of that you can
claim capital allowances on the cost of the car. In year one you
can claim 25% of the original cost, then in year two 25% of what's
left, and so on in future years. To make it more complicated the
maximum allowance each year is £3,000, so an expensive car
will get written down much more slowly. Having worked out the
allowance you then only get tax relief on the business
proportion.
When you come to sell
the car you have to compare what you get for it with what its cost
has been reduced to. If you get less than the amount it's written
down to then you get a further balancing allowance, but if you get
more then you get charged tax on the excess.
By now you're probably
hoping there's an easier method, and there is.
 The easy
methodThe simple method is
to keep a record of business journeys and claim using the Revenue
approved rate per mile which is 40p for the first 10,000 business
miles per year. If you do more business miles than that you can
claim 25p for each mile over 10,000.
If you use a motorbike
for business journeys you can claim 24p per mile, or a very
generous 20p if you use a pedal cycle. There is no mileage
allowance for walking or travelling to an appointment on the back
of a camel. And doctors do not advise male escorts to cycle to
assignations. |
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1. Do-it-Yourself
