Student working as escort jailed over unpaid tax

Club in AmsterdamVit Simanek/Czech News Agency/Press Association Images

29-year-old Donna Asutaits has been jailed for 16 months for failing to pay tax on her earnings, after she became a 'high-class' escort in order to put herself through university.

So how can the country claim tax on illegal activity?

The crime

A report in the Telegraph revealed that between 2005 and 2007, Asutaits was a self-employed 'high class' escort, charging £1,000 a night for her services.

As Southwark Crown Court highlighted, the nature of the work made it hard to estimate her income in that time. However, she paid £110,000 as a cash deposit on a Knightsbridge flat, and when police raided her home they found £72,702 in cash and valuable jewellery.

Prosecuting barrister Jonathan Polnay said: "When she was arrested she read out a pre-prepared statement in which she said she had been a self-employed escort for about ten years, and that she was often paid in cash and received valuable jewellery in gifts."

Prosecutors initially accused Asutaits of earning £870,000 over five years and owing £315,000 in tax, but she successfully showed the tax-free period of earnings was just two years.

Her defence highlighted that she had started this work at the age of 22 out of a desperate need to fund her studies, and had not paid tax out of naivety. Her lawyer added that as a result of the stress of the case she had dropped out of her masters degree.

Judge Peter Testar found her guilty of avoiding £120,000. He said: "In my judgment this was an offence that was fraudulent from the outset carried out over a significant period of time. From the outset the defendant made the decision that she was not going to account to the public authorities for the money that she was receiving from her occupation."

She admitted one count of cheating the public revenue between April 2005 and January 2007, when she earned more than £300,000 as an escort, and there will be a proceeds of crime hearing to try to claw back some money.

How can tax be due?

It would seem bizarre that the UK government can collect tax on something that falls outside of the law. However, there are two things to bear in mind. First, working as an escort is legal. While solicitation is illegal, the act of prostitution and the payment of cash are completely legal.

Second, just because an activity is illegal, it doesn't mean it's not liable to tax. If a shopkeeper sold alcohol to someone under 18 they would still have to pay tax on the profit.

A case in 1990 made the tax position perfectly clear, and as the taxman says: "If the activities of a prostitute or any other person deriving income from prostitution are organised in such a way as to constitute a trade or profession, the profits are liable to income tax."

In fact, prostitutes also have to be VAT registered if their income is over £77,000 a year, and have to charge their clients VAT. Presumably, not many of them ask for a receipt.

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