For those of you in a hurry here is a quick guide to tax and sex work. There’s a lot more information to be found elsewhere on this site but here are the basics.
Escorting is a taxable business activity. That’s true whether you are paid for time and companionship, for providing sexual services or simply for tying a naked businessman to your coal bunker with the washing line and thrashing his buttocks with wet stinging nettles.
The same goes for other sex work including erotic dancing, web camming and phone sex, professional domination and the production and sale of pornography.
Anyone who is paid by a client to engage in sex acts, whether you work independently or through an agency, is self-employed and you need to register with HMRC (Her Majesty’s Revenue & Customs). Other sex workers are also nearly always self-employed. It is possible for a dancer to be employed by a club, but it is unusual; and porn models and actors could be employed by the film makers, but usually aren’t. Anyone trafficked or forced into sex work is not in business, but the victim of a crime.
The easiest way to register as self-employed with HMRC is via their website www.gov.uk/set-up-sole-trader. You don’t need to register before you start work, and in any case it will probably take you a while to decide whether this business is for you. But don’t put off registering once you are up and running. You have plenty of time – at least 6 months, depending on what date in the tax year you start – but things that keep getting put off have a habit of getting forgotten.
You will need to tell HMRC what kind of business activity you are engaged in. Some ladies declare their business as escorting, others use something less obvious and more vague – variations on massage therapist or fitness consultant are popular choices – but whatever you choose to do it will not affect the amount of tax you pay or limit the business expenses you can claim for. You will find more about this here Do I have to describe myself as an escort?
Once you are register you have to fill in and submit a Tax Return form every year. The forms are sent out in early April and you have to give details of your income for tax year (which runs from 6 April to 5 April) that has just ended. You have a choice of 3 ways of sending in your Tax Return:
- You can fill in the paper form
- You can complete it on-line
- Or you can instruct an accountant to complete and submit it for you.
If you fill in the paper form you have to send it in by 31 October. With the other two methods you have an extra 3 months until 31 January. And if you send in the paper form you should get a letter back from HMRC within a few weeks telling you how much you have to pay, while doing it on-line or via an accountant will produce an immediate calculation.
Your tax bill is made up of two elements, income tax and national insurance. The tax bill for each tax year is normally paid in 3 instalments: a first payment is due before the tax year ends, this is payable on 31 January; a second payment is due 6 months later on 31 July; and a final payment is due the following 31 January. Obviously the tax cannot be worked out before the tax year ends so the first two payments are just calculated as half of the previous year’s total tax bill. The final payment the following 31 January is then worked out to bring the total up to the correct figure.
One thing to watch is that when you first start there will be no previous year’s tax to use as the starting point for working out the first two instalments. That means you will pay nothing until the final instalment is due, and it could mean a lot of tax to pay in one go. It’s therefore important to set aside money each month towards your tax bills. The exact amount you should save each month will depend on the way you work and the level of expenses, and also on whether you have other income such as a full or part-time job. But if you set aside 25% of your income from clients that should be more than adequate. I’d strongly recommend putting it into a separate savings account, and if you want to be really tax efficient you could use a Cash ISA. To help you estimate how much to set aside each month use our Tax Calculator.
Your tax bill will be based on your business profit, which is your business income from which you can deduct allowable business expenses. Among the things that you can include in business expenses are condoms, travel expenses, advertising, and agency fees if you get booking through them. There is lots of information and guidance on the Income & Expenses page.
You don’t have to provide HMRC with a list of your income or your expenses – the Tax Return form only asks for the totals – but you do have to keep records that justify what you put on the form. And if you get a tax investigation HMRC will ask to see your records. If they find that you have unexplained money coming in it will be treated as taxable while you won’t get tax relief for unexplained money going out. If you have a good set of records that you write up as you go along you will put the onus on HMRC to try to prove they are inaccurate, but if you have very poor or no records HMRC are entitled to make estimates of your income and tax you accordingly. So it is very important to keep up to date and organised records of all your money coming in and going out. There are various acceptable ways of keeping your records but you might like to take a look at our TaxRelief Diary which is a straightforward easy to use bookkeeping diary specially developed for escorts.
All this may seem scary, but you should not feel frightened by HMRC. For the most part they are friendly and behave in a civilized and non-judgmental way. Their main aim is to help you meet your tax obligations and they offer very good free training seminars for new business owners as well as providing telephone advice through their help lines.
And finally, there are accountants who specialise in helping escorts deal with their taxes. So if it all looks too daunting to cope with on your own take a look at our directory Accountants4escorts.