Do Escorts Pay Tax?

Over the years I have had quite a few enquiries from workers wondering if they should pay tax on their escorting income and if so, how they should go about doing it. The answer is always going to be: yes, you should be paying tax on your escorting income. Every other worker and business owner pays tax on their income, and sex work is no different in the eyes of the HMRC. But it is, of course, kinda different, and paying tax may raise a moral issue for you. Funding a government that refuses to decriminalise what we do and seems to be consistently pondering law changes that may make buying sexual services or advertising them online, illegal, is a bitter pill to swallow. Furthermore, paying HMRC via a banking system that discriminates against sex workers ruthlessly leaves a lot to be desired. There is not one British bank that will give an escort a bank account. I mean, how can we be expected to pay our income tax without a bank account….?

Personally, despite these huge, anxiety-inducing reservations, I have always paid my dues to HMRC amounting to many thousands of pounds directly from the business of pleasure. The way I see it:- I use the NHS, the education system and any number of other services funded by collective tax money. I also received benefits years ago and would like other people to be able to receive them as needed. So, and despite this government being an absolute shower of cunts, it is right that I contribute to the system. Furthermore, undeclared money is pretty useless for anything but the basics. I can’t buy a house or car with it, I can’t invest it. So what’s the point of having a load of it? All things considered, while I am not qualified in any way, shape or form to give you financial advice, I can at least give a little insight into my understanding of paying tax as an escort.

The crucial thing to consider are the two different ways to pay tax: self assessment income tax (operating as a sole trader) or corporation tax (operating as a limited company). Both of these taxation types are totally different to VAT, which you are legally obliged to collect and pay once your turnover hits £90,000 in any rolling 12 month period. VAT is paid in addition to and separately from income tax/corporation tax and is not covered here.

Self Assessment Income Tax (as a sole trader)

• Relatively straightforward – you register online on the GOV website and file your own annual tax return.

• Expenses (mileage, condoms, lingerie and outfits bought and used exclusively for the purposes of business, website, advertising etc) can be deducted from your total income to save tax.

• The first £12,570 earned per year is tax-free.
  Note if you escort alongside a salaried job, your tax-free allowance will likely already have been used by your employer.

• Income between £12,570 and £50,270 (after expenses are deducted) is taxed at a basic rate of 20%.

• Income between £50,271 and £125,139 is taxed at a higher rate of 40% and you will also need to repay child benefit at this level too.

• Income over £125,140 is taxed at 45%.

• There is an amount of National Insurance (NI) to pay in addition.

• You fill in everything online at the end of each tax year, HMRC tell you what you owe, and you then transfer them the money.

• I recommend opening a sole trader business bank account to make your end of tax year totting up easier to deal with. See my ‘5 tips for working as an escort’ post for bank account opening tips.

Corporation Tax (via a Limited Company)

• Requires the formation of a limited company (simple enough to do online).
• Complex accounts must be submitted annually to HMRC and Companies House – you’ll need an accountant for these and a basic copy will be on public record.
• Just like self assessment, your expenses can be offset against your income.
• You will have accountant’s expenses in addition and these will likely be anywhere from £700 – £1200 per annum.
• If you use a limited company bank account, clients will be able to trace back to your Companies House record. There, your real name is visible, possibly your address too if you don’t mitigate that at company creation stage. I recommend always using a sole trader bank account with totally different business name, even as a Ltd Company. Don’t tell the bank what you’re up to, obvs.
• You will pay corporation tax between 19%-26.5% on your annual profits (income minus expenditure).
• The annual profits do not belong to you, they belong to the company. If you leave them in the company no further tax is due. But you’ve got to live, right? In order to take money out of the company, you need to pay personal tax on it.
• You will need to register for self assessment to do this, just like you would do as a sole trader. If you are using an accountant, ask them to handle all this for you.
• Money can be withdrawn from the company as salary and tax/national insurance is paid at the rates specified above under self assessment. This is in addition to the corporation tax that will have already been paid by the company on the money.
• Or profit (and profit only) can be withdrawn as a dividend on which you will pay 8.75% tax up the higher rate tax band, and then 33.75% over that. Again, this is paid in addition to corporation tax. Generally company directors (which you would be) withdraw most of their profits as dividends.
• To maximise the tax efficiency of a limited company, accountant advice is paramount.

Limited Companies used to be my go-to way to operating any business, but as you can see above, they are no longer particularly tax efficient for a lone worker with a modest income/profit. If, however, you are earning big bucks, and did not need it all right away, a Limited Company is a good way to mitigate paying higher rate tax. For example, if I was earning £200K a year, but only needed £80K to live, I could possibly save money by creating a Limited Company and leaving £120K in it to withdraw in a more tax efficient way further down the line. Yes something between 19% – 26.5% (latest rules are complex) is due on it at the end of that year as Corporation Tax, but that is less than the 40% – 45% I would have to pay as a sole trader. For comparison, you cannot ‘leave money in’ a sole trader business, so at the end of the year that £200K is fully taxable.

For a typical part-time sex worker, start as a sole trader and self assessment – DIY. When and if you begin earning into the higher rate tax bracket, talk to an accountant and get advice about a limited company. It may, or may not, be worth it. When you hit £90K in the previous 12 months (a rolling period, not a set one), talk to an accountant about registering for flat rate VAT. The flat rate bit is important. Expect your tax bill to increase by a further 11%-12% at this point – brutal.

Tax doesn’t have to be taxing, they say. It’s bollocks of course, it can be and is very confusing, especially corporation tax! However, I am sure you can find a good book or some good websites on the basics of self assessment. There are crucial dates and deadlines involved each year. Research and get to know and understand them. Do that as soon as you start earning. This blog by my clever friend Lottie might be a good place to start, though it is a little old now.

Pretty much all escorts I know nowadays pay their taxes. We are begging for legitimacy at this point. I can tell you that you need nerves (and guts) of steel to cope during a HMRC ‘compliance check’. Some years ago I went through a full compliance check – a process that combed through all of my bank accounts in detail looking for deposits and dragged on for around 18 months. I hadn’t underdeclared and didn’t owe a penny, and it was still bloody stressful, expensive and time consuming! I can’t image what it would have been like had I been hiding income. Don’t just take money and not pay tax on it without extremely careful consideration. And do consider the usefulness of undeclared money. As an entrepreneur, you are massively limiting your options.