VAT is a tax on goods
and services supplied by a business, and it applies to escorting if
you are required to register. The way it works is that you
add 17.5% tax onto the charge you make to your clients, and you are
in effect collecting the VAT on behalf of the government. You will
also have been charged VAT on some of your expenses and you can
claim that back from the VATman. Then at the end of every 3 months
you pay over the difference to HM Revenue &
Customs. |
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 Businesses that
receive less than £67,000 per year from their customers don't
have to register. But you need to be careful. At the end of each
month add up your total business receipts for the last 12 months
and if it comes to more than £67,000 you need to register
within 30 days. Before 1 April 2008 the limit was
£64,000So, for example, at
the end of January 2008 you add up your business income for the 12
months from 1 February 2007 to 31 January 2008, and lets say it
comes to £53,000 - no need to register. But you have an
exceptionally busy month in February this year, so at the end of
the month you add up your income for the 12 months from 1 March
2007 to 29 February 2008, and it comes to £65,000 - you need
to register within 30 days i.e. by 30 March
2008.
Even if you do breach
the threshold you don't have to register if you can convince HMRC
that your future turnover will be below the de-registration limit
which is currently £65,000 (£62,000 before 1 April
2008.)
The limits went up
from 1 April 2008. The way that works is that at the end of March
2008 you need to add up your turnover for the 12 months to 31 March
2008 and compare it with £64,000, but at the end of April you
add up your turnover and compare it with the new limit of
£67,000.
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You need to watch out
for the VAT registration pitfalls.
 First of all you have
to add up your income before taking off any business expenses. So
if you go on tour and receive £5,000 from your clients but the
tour costs £2,000 so you make a profit of £3,000, it is
still the £5,000 that you add in to your
total. You also need to
watch out for other business you run because VAT covers all the
businesses you own. Lets say your escorting business receives
£35,000 a year from clients but you also own a chimney sweep
business which receives £35,000 a year from its customers. You
need to register because the combined total of £70,000 is more
than the registration threshold of £64,000. Please note it is
only businesses in the same ownership that have to be added
together: if you are employed as a chimney sweep then you
don't add the income to your escorting business, or if the chimney
sweep business is a partnership with your mother (or anyone else
for that matter) it doesn't get added to your escorting
business.And of course there is
a penalty for late registration. |
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Here's why you should
avoid VAT registration if you possible can.
 To keep the figures
easy lets suppose you normally charge £100 for a 1 hour
appointment. If you are registered for VAT you have to add on 17.5%
VAT which you collect on behalf of the government. That means
either putting your prices up to £117.50 which means your
client pays more, or you leave the price the same but absorb the
VAT yourself which means you still get £100 but you now have
to pay £14.89 to the VATman. Over the course of a year
that is a lot of money - if you're only just above the registration
limit you could lose about £9,500 a year from
registering.Of course if you are
registered you will be able to reclaim the VAT you get charged on
things like advertising that you buy for your business, but you
will still be considerably out of pocket unless your outgoings
exceed your income and your business is losing
money.
The other important to
reason for steering clear of the VATman is to avoid the hassle of
another bureaucratic system with all the extra forms and potential
for grief. |
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If you do have to
register then the basic mechanics are straightforward. You have to
charge 17.5% VAT on all the VATable goods and services you supply,
and you collect this 'output' from your clients on behalf of the
government. On the other side you are entitled to claim back the
VAT you have been charged on your business expenses - 'input' tax.
At the end of every 3 months you add up all your output tax, deduct
all your input tax, and pay the difference to the
taxman.
Every quarter the
VATman will send you a green VAT return. You have a month to fill
it in and pay over the VAT you owe. You can also submit your
returns on line in which case you get a few extra days to send it
in, and you can also pay by direct debit if you
wish.
There are penalties
for late returns and late payment.
 VAT is a very complex
tax with lots of pitfalls for the unwary. If you have to register
for VAT I would strongly urge you to sign up with an
accountant. |
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 If your business
expenses are fairly modest you might well be better off by electing
to use the VAT flat rate scheme. This allows you to ignore the
actual output and input tax and simply pay a flat rate percentage
of your turnover. HMRC publish a list of flat rates for different
types of business, but strangely these don't include prostitution.
My view is that this means you can use the rate for "any other
activity not listed elsewhere" which is 10%. If I'm right then this
is what it means for an escort receiving £94,000 per
year.Under the normal
method you she would calculate her output tax like
this
£94,000 =
£80,000 + VAT of £14,000 (80,000 x
17.5%)
Therefore output tax =
£14,000
From which she could
deduct her input tax - the VAT on her expenses.
Under the flat rate
scheme it's all much simpler.
VAT payable -
£94,000 x 10% flat rate = £9,400
So she's better off
unless the VAT on her expenses comes to more than £4,600,
which equates to almost £31,000 of VATable
expenses.
There are conditions
which have to be satisfied before you can use the flat rate scheme,
but I see no reason why escorts should not meet them. There are
also special rules which enable you to claim back the VAT on
expensive capital expenditure. |
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1. Do-it-Yourself
