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The Oldest Profession

Introduction to Taxation and Self Employment

 


Tax doesn't have to be taxing

Tax, does the simple thought of the word fill you with fear? The Government tell us tax does not have to be taxing, easy for them to say. For most people they only ever have to think about how much tax is being taken from their weekly or monthly pay packet! If you are employed then tax does not really become any more of an issue that that. If, however, you are self employed then it is something you need to pay careful attention to. Failure to do so could mean you are not paying enough or indeed maybe paying too much!

By working as an escort, it is very likely you will fall into the definition of being self employed. We all have a legal obligation to declare income we receive, be it trading income from self employment such as escorting, income received on property we let out or interest from bank accounts and other investments. Therefore, if you are working as an escort you have a legal obligation to declare the income you earn and, depending on the level of earning, an obligation to pay income tax and National Insurance. Working only part time or earning only a small amount of money is not a valid reason to avoid declaring the income.

Why register?

HM Revenue and Customs have teams dedicated to focussing on areas where under collection of tax may occur and clearly any area where cash is the prominent form of payment represents a high risk. HMRC has significant powers to investigate individuals they believe may be earning income and not making declarations of this income. They may become aware of these individuals through anonymous tip offs or, as has been the case in some areas, focus on crackdowns by targeting particular areas or industries. It is simply not worth taking the risk of choosing not to register as self employed and making an annual declaration of earnings by submitting a tax return.

Of course there are other reasons that mean registration is a sensible option. By declaring yourself self employed you may be entitled to working or child tax credits based on your personal circumstances. Being self employed also means you are likely to be making National Insurance contributions ensuring you are building pension credits and of course if you wish to borrow money for a mortgage or other purposes you have an income to declare.

How do I pay tax?

As a self employed individual you pay tax on your annual profits. This is the income you earn less your allowable expenses (more on these later). As with employment you are allocated a tax free allowance (£6,035 2008/09) so this is taken off of your annual profits and you then pay tax at the basic rate of 20% or 40% at higher rate. Tax for self employed individuals is paid by making payments by 31st January and 31st July each year based on your previous year’s profits with any annual adjustments being made in January.

You will also pay a National Insurance contribution of £2.30 per week; this can be paid by monthly direct debit, quarterly payments by cheque, or over the counter at the local post office. If annual profits exceed £5435 (2008/09), Class 4 National Insurance is payable at the rate of 8% up to £40,040 and 1% above this threshold.

Your taxable profits are calculated and submitted via an annual tax return that is issued shortly after the 5th April each year and must be submitted by the end of October if a paper return or by 31st January if submitted online. Failure to submit a tax return by the deadline will result in an initial penalty of £100 and this will increase at later intervals until submission.

There is, of course, plenty of help and advice out there to support you either from HM Revenue and Customs themselves or from an accountant.

How to register

You have a legal obligation to notify HM Revenue and Customs within 13 weeks of commencing self employment. Information is available at www.hmrc.gov.uk where you can register online. Failure to register within this timeframe could lead to a £100 penalty.

You can also directly access the becoming self employed form at http://www.hmrc.gov.uk/forms/cwf1.pdf


More information


The following articles will be appearing on the SEP Support & Info Section over the coming weeks to provide a range of information and guidance relating to tax when working as an escort. The general principles, however, are likely to be of relevance to anyone running their own business or planning on setting up a business.

• How to register self employed, and getting started
• Getting advice and working with accountants
• To claim or not to claim: allowable expenses
• General Principles of Tax (Income Tax, NI and VAT)
• FAQs



The author is a Chartered Certified Accountant. Whilst the information here is likely to have been correct at the time of writing it is intended to be used for general information and no liability is implied or accepted. Should you require professional advice tailored to your specific situation the author would be happy to provide this under usual terms of engagement, so do feel free to contact via This email address is being protected from spambots. You need JavaScript enabled to view it.