The taxman vs the prostitutes

Prostitutes have to pay tax on their earnings, so why isn't their business entitled to same protections as everyone else?

This week’s news regarding Donna Asutaits, who was jailed after earning more than £300,000 in two years and failing to declare tax, is a reminder that prostitution is taxable. Well, more taxable than Goldman Sachs or Vodafone, at least.

The story of how the trade came onto HM Revenue and Customs’ somewhat hit-and-miss radar gives an interesting little insight into its relationship with the state. I decided to talk to a man who could tell me more. While he doesn’t want to give his name, he goes by the online moniker of Jolyon K Jolyon (he’s a fan of The Forsyte Saga), and he’s now a retiree, living in the West Country.

Some years ago, he was running an accountancy practice. He found himself acting for a lady who told him she was a dental technician, but the more he looked into her records, the less they stacked up. Why, for example, was she always paid in cash? He held a meeting with her, and she admitted she was a prostitute. Undaunted, he decided to continue working for her, and soon she introduced him to more women working in the same industry.

Jolyon is rather knowledgeable on the history of this issue. He tells me it was resolved back in the 1980s, when the famous madam Lindi St Clair underwent a series of investigations after she refused a discount to a cross-dressing tax inspector. Jolyon’s website tells the story in full, but a précis runs thus. 

After the first investigation Lindi appointed a proper firm of Certified Accountants to act for her, and they recommended forming a limited company as a way of saving tax. The following year the Attorney General successfully applied to the High Court for the registration to be quashed. A series of legal battles were then waged between St Clair and the Revenue, in which she drew attention to what she felt was the hypocrisy of the state.

You could argue she had a point. During one police raid, the Vice Squad discovered Lindi sitting quietly in the lounge, with a vicar in a gas mask handcuffed to a wall, a straitjacketed member of the House of Lords shut up in a cupboard and an MP chained up to a dog kennel in the garden. At one point she appeared before the Appeal Court judges dressed in fish net tights, a low-cut shiny PVC dress, and a steel-studded belt from which handcuffs dangled: “I felt that if I were to be taxed as a tart, I would appear as one.”

Lindi’s barrister argued that although prostitution is lawful it can’t be considered a trade because a prostitute cannot do things such as advertise, go into partnership, form a limited company, employ people, rent premises or sue for debts. She lost the case and her subsequent appeal at the Court of Appeal. The judges said: "[Prostitution] consists in the supply of services for reward on a commercial basis. Although the bargains made between the prostitute and her clients are unenforceable as being contra bonos mores neither the bargains made nor the services supplied are illegal in the sense of being prohibited…" In English – what you’re doing isn’t illegal even if everything surrounding it is, so pay up.

The case is cited by HMRC as the judgement that confirms prostitution is taxable. “But even today, there’s a huge misconception about what the law is,” says Jolyon. He feels that the big problem lies with the legislation on brothel keeping. This – unlike prostitution, is considered a crime. Common sense dictates two fairly simple things: one, prostitution won’t go away any time soon (something about that whole "oldest profession" thing), and two; the women doing it are safer working indoors with a maid, rather than working on the street.

There’s neither rhyme nor reason to this law, besides the rule that for every outraged Daily Mail headline there’s an equally cowardly political reaction. This could be seen in action a few years ago, when Labour announced it was looking into allowing small groups of women to work together, the Mail newsdesk editors had to be mopped down with a moist towelette, and the idea was quietly junked.

The common argument against is that there’s an epidemic of trafficking which requires the police to clamp down on brothels as and when they choose. The problem is, the last time an MP tried to cite data to support it, it turned out they were drawing on statistics drawn up by that well-respected institute of independent research, the Daily Mirror (as a side note, it's never a good idea to cite this as a source in Parliament and then go on Newsnight, on the off-chance Jeremy Paxman rips you a new one - see below).

Jolyon says: "The women for whom I worked simply made a hard decision and did the work with their eyes open. If people are paying taxes on their business they should be entitled to the same protection as anyone else. There are already laws to protect from trafficking and slave labour – what makes the sex industry different?”

I tell Jolyon I know of one case where the officers who closed down a brothel had, for a period prior to the closure, been making use of its services – and have described another case at length, where the police’s behaviour could best be seen as reprehensible. It’s an inconvenient truth that the cops get a share of the frozen assets when they close a brothel down.

Jolyon tells me the authorities make it impossible for brothels to function above ground: “Accountants are part of the regulated sector – they’re bound by money laundering regulations, so if they come across a brothel they’re obliged to tell the Serious Organised Crime Agency, and can’t tell the client that that’s what they’ve done. Similarly, no accountant wants to take on a client which at any time could be closed down under the Proceeds of Crime Act. That’s why I only worked for women working on their own.”

As I wrote last month, the authorities have been quietly trying to “clean up” the Olympic boroughs. In that case it was a police-lead exercise – but Jolyon tells me about another operation I hadn’t noticed. According to a press release Operation Vermont, was “a multi-agency exercise which ran for six weeks in May and June. During this time 31 businesses were suspected to be underpaying workers, or were considered a significant risk requiring further HMRC investigation.”

Jolyon concludes: “It’s interesting that they targeted things like fast food outlets and mini cab offices, rather than brothels – you’d think they’d be the first port of call, if the industry is as sordid as they make out.” Donna Asutaits claimed in her defence that she was simply naive in not paying tax. One might raise an eyebrow at the idea she could earn so much money and assume it wasn’t taxable. But given the long-standing stigma that has emanated from government on this issue, she might well have been telling the truth.

 

A Soho prostitute waits for some custom. Photograph: Getty Images

Alan White's work has appeared in the Observer, Times, Private Eye, The National and the TLS. As John Heale, he is the author of One Blood: Inside Britain's Gang Culture.

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Arsène Wenger: how can an intelligent manager preside over such a hollowed-out team?

The Arsenal manager faces a frustrating legacy.

Sport is obviously not all about winning, but it is about justified hope. That ­distinction has provided, until recently, a serious defence of Arsène Wenger’s Act II – the losing part. Arsenal haven’t won anything big for 13 years. But they have been close enough (and this is a personal view) to sustain the experience of investing emotionally in the story. Hope turning to disappointment is fine. It’s when the hope goes, that’s the problem.

Defeat takes many forms. In both 2010 and 2011, Arsenal lost over two legs to Barcelona in the Champions League. Yet these were rich and rewarding sporting experiences. In the two London fixtures of those ties, Arsenal drew 2-2 and won 2-1 against the most dazzling team in the world. Those nights reinvigorated my pride in sport. The Emirates Stadium had the best show in town. Defeat, when it arrived in Barcelona, was softened by gratitude. We’d been entertained, more than entertained.

Arsenal’s 5-1 surrender to Bayern Munich on 15 February was very different. In this capitulation by instalments, the fascination was macabre rather than dramatic. Having long given up on discerning signs of life, we began the post-mortem mid-match. As we pored over the entrails, the curiosity lay in the extent of the malady that had brought down the body. The same question, over and over: how could such an intelligent, deep-thinking manager preside over a hollowed-out team? How could failings so obvious to outsiders, the absence of steel and resilience, evade the judgement of the boss?

There is a saying in rugby union that forwards (the hard men) determine who wins, and the backs (the glamour boys) decide by how much. Here is a footballing equivalent: midfielders define matches, attacking players adorn them and defenders get the blame. Yet Arsenal’s players as good as vacated the midfield. It is hard to judge how well Bayern’s playmakers performed because they were operating in a vacuum; it looked like a morale-boosting training-ground drill, free from the annoying presence of opponents.

I have always been suspicious of the ­default English critique which posits that mentally fragile teams can be turned around by licensed on-field violence – a good kicking, basically. Sporting “character” takes many forms; physical assertiveness is only one dimension.

Still, it remains baffling, Wenger’s blind spot. He indulges artistry, especially the mercurial Mesut Özil, beyond the point where it serves the player. Yet he won’t protect the magicians by surrounding them with effective but down-to-earth talents. It has become a diet of collapsing soufflés.

What held back Wenger from buying the linchpin midfielder he has lacked for many years? Money is only part of the explanation. All added up, Arsenal do spend: their collective wage bill is the fourth-highest in the League. But Wenger has always been reluctant to lavish cash on a single star player, let alone a steely one. Rather two nice players than one great one.

The power of habit has become debilitating. Like a wealthy but conservative shopper who keeps going back to the same clothes shop, Wenger habituates the same strata of the transfer market. When he can’t get what he needs, he’s happy to come back home with something he’s already got, ­usually an elegant midfielder, tidy passer, gets bounced in big games, prone to going missing. Another button-down blue shirt for a drawer that is well stuffed.

It is almost universally accepted that, as a business, Arsenal are England’s leading club. Where their rivals rely on bailouts from oligarchs or highly leveraged debt, Arsenal took tough choices early and now appear financially secure – helped by their manager’s ability to engineer qualification for the Champions League every season while avoiding excessive transfer costs. Does that count for anything?

After the financial crisis, I had a revealing conversation with the owner of a private bank that had sailed through the turmoil. Being cautious and Swiss, he explained, he had always kept more capital reserves than the norm. As a result, the bank had made less money in boom years. “If I’d been a normal chief executive, I’d have been fired by the board,” he said. Instead, when the economic winds turned, he was much better placed than more bullish rivals. As a competitive strategy, his winning hand was only laid bare by the arrival of harder times.

In football, however, the crash never came. We all wrote that football’s insane spending couldn’t go on but the pace has only quickened. Even the Premier League’s bosses confessed to being surprised by the last extravagant round of television deals – the cash that eventually flows into the hands of managers and then the pockets of players and their agents.

By refusing to splash out on the players he needed, whatever the cost, Wenger was hedged for a downturn that never arrived.

What an irony it would be if football’s bust comes after he has departed. Imagine the scenario. The oligarchs move on, finding fresh ways of achieving fame, respectability and the protection achieved by entering the English establishment. The clubs loaded with debt are forced to cut their spending. Arsenal, benefiting from their solid business model, sail into an outright lead, mopping up star talent and trophies all round.

It’s often said that Wenger – early to invest in data analytics and worldwide scouts; a pioneer of player fitness and lifestyle – was overtaken by imitators. There is a second dimension to the question of time and circumstance. He helped to create and build Arsenal’s off-field robustness, even though football’s crazy economics haven’t yet proved its underlying value.

If the wind turns, Arsène Wenger may face a frustrating legacy: yesterday’s man and yet twice ahead of his time. 

Ed Smith is a journalist and author, most recently of Luck. He is a former professional cricketer and played for both Middlesex and England.

This article first appeared in the 24 February 2017 issue of the New Statesman, The world after Brexit