Once in a while a client is so pleased to see you that he arrives with not just your agreed fee but also hands over a thoughtfully selected gift. And as you thank him and unpack yet another overflowing bag of organic vegetables I’m guessing your first thought might well be “that’s nice – I wonder if I have to pay tax on this lot?”
Well, wonder no more!
One of the difficulties any business owner faces when she sets her prices is that every customer will perceive the value of her services differently. That is particularly true of escorting type services because so many factors including personalities, chemistry, techniques, nerves, and depth of pockets, can influence the client’s ideas of the value of an encounter. One client might come away from a £250 session feeling he has received exceptional value for money, while another might leave feeling short changed. Unfortunately you have no way of knowing how much value a client puts on two hours spent experiencing your unique expression of your sexuality, and how much he would be prepared to pay and still feel the experience had been value for money. One solution is to offer a choice of longer sessions so the client who would be prepared to pay you £400 has the opportunity to do so. Another is to allow (or encourage) clients to supplement your agreed fee with tips or gifts. And escorts’ web sites seem to do that with varying degrees of subtlety.
Your fee (or donation or tribute, or whatever else you choose to call it) will always be taxable. But what of the extras – the tips, gifts or vouchers? It all depends: but they don’t escape the tax net just because they’re a voluntary payment that a client chooses to give you. To decide whether a gift or tip is taxable there are two questions to answer.
The first question is whether what you have received is a business receipt or is it a personal receipt. Some things are clearly nothing whatever to do with your business – gifts from your mother, compensation for being injured in an accident that wasn’t your fault, or supermarket BOGOF’s. But if a gift is from a client, or from someone using your escorting web site, HMRC will argue that it is an extra voluntary payment for your services, unless you can demonstrate that this could not possibly be the case.
The second question is whether you received what is called ‘money or money’s worth.’ A business receipt can only be taxable if you receive it in money or in the form of something that you can convert into money. This follows from an 1892 House of Lords decision in the case of Tennant v Smith – if you’re tempted to Google it you might have trouble; I found myself on a Dr Who comparison web site.
So, let’s look at a few scenarios:
Your usual fee is £180, but your client gives you £200.
The extra £20 is clearly a business receipt, and it’s received in money. Taxable.
This time your client pays you £180 and gives you a £20 iTunes voucher.
The voucher is ‘money’s worth’. Taxable.
A regular client sends you a £50 Amazon voucher on your birthday.
The voucher is an additional payment for past services, so it’s a business receipt. It’s also money’s worth. Taxable.
The £50 birthday voucher comes from a former client. You haven’t seen him professionally for two years but he’s become a friend.
I’d argue this is a personal, and not a business, receipt – although HMRC might not agree. Not Taxable.
A client pays for you to accompany him to the opera.
You cannot convert the ticket into money because you can’t transfer it to anyone else, so it isn’t money’s worth. Not taxable.
A client pays your £250 fee and gives you a large bouquet of flowers.
It’s a business receipt, but not money’s worth because there’s no market in second hand flowers and you can’t convert them into money.
A regular client who owns a garage services your car for free.
He’s a regular so it’s a business receipt. But it’s not money’s worth because you can’t turn a car service into money. Not taxable.
A regular client gives you a new iPad.
Again he’s a regular so it’s a business receipt. And this time it is readily convertible into money because you could (if you wanted to) sell it on ebay. Taxable – based on second hand value.
Someone (you have no idea who) buys you jewellery from the Amazon wish list that is linked to your business web site.
This is a business receipt – unless you can prove the purchaser was your mother! And because jewellery has a second hand value it can be converted into money. Taxable – based on second hand value.
Incidentally, in the last few weeks it has been reported that Amazon are deleting wish lists linked to the sites of adult industry workers. Their reason seems to be that they think items are being bought not as gifts but as a form of barter for adult services.
A client buys (or makes) you a St Andrew’s cross for your dungeon.
It’s from a client so it’s a business receipt and it represents money’s worth because you could sell it. So it’s taxable – based on second hand value. BUT in practice you won’t pay any tax because if you bought it yourself you could claim it as business capital expenditure.
Your client turns up struggling with a large overflowing bag of the finest fresh organic vegetables.
Any vegetables you eat, or play with, during your time together are certainly not taxable. And any you take home probably have almost no second hand value. Not taxable.