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Clever wheezes that don’t work: poker winnings

You can’t escape tax on escorting income by pretending it’s gambling winnings.

It is well established that any profit an escort makes from prostitution is taxable, but what if she convverted it into something that is not taxable – let’s say poker winnings? I’ve seen it suggested that instead of charging a fee the escort might challenge the prospective punter to a game of poker with her usual fee as the stake. The escort would of course be an excellent poker player and invariably win. At which point she’d be so excited she’d celebrate by shagging her defeated opponent for free.

But why stop at poker? Why not a game of extreme strip pictionary, or poohsticks with a happy ending? There are lots of games that could be enriched by adding good dollops of cash and nudity …

Copyright xkcd.com

The bad news is that as a tax saving strategy it’s just not going to work.

The reason it won’t work is that it’s patently a complete sham. If you have a website advertising your services and prices on a commercial basis there is no chance that the Revenue will accept that the poker ruse is a non-commercial transaction and that the players have not come via your website. At the very least you would need to produce examples of poker players who had lost to you but not received sexual services, as well as poker players you had lost money to.

But there is another flaw in the plan. Gambling winnings are usually exempt from tax, but not always. As an aside, the reason they are usually exempt is that the Revenue know full well that mosst gamblers lose in the long run. If the profits were taxable it follows that HMRC would have to concede tax relief for losses as well. Overall the taxman would lose out. The only circumstances when gambling winnings are taxable is when they arise from carry on a trade.

There are a couple of legal cases on this. One of them (Burdge v Pyne) concerned a club with a gaming room where the business the owner habitually won large sums of money from his customers. His winnings were held to be part of the taxable business profits of the club.

…the Appellant was carrying on the business of a club; upon the club’s premises he habitually played the game of three-card brag with other members of the club; and at that game he was invariably successful… Given those facts, it seems to me that the Commissioners came to the right conclusion in finding that the winnings of the Appellant from three-card brag did represent a receipt by him in carrying on the business of the club. He owned the club; he carried on this game upon the club premises as such; and, moreover, it was members of the club in whose company he played the game and from whom, it appears, he invariably won money. I see no reason to think that that particular activity on the part of a club proprietor is not an activity in the course of carrying on the business of the club, and consequently winnings from that activity fall into the receipts of the club for the purpose of ascertaining the profits of its business.

Burdge v Pyne [1968] 45TC320.

Isn’t an escort operating a poker scheme actually earning her winnings in the course of her business? Effectively she is offering just another experience to her clients: some will pay her for a ‘girl friend experience’, some for domination role play, and some for a ‘hustler’ experience.

So whether it’s poker winnings, or a novel form of poohsticks, this ain’t going to work as a way of escaping tax.

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