Excisemen get go-ahead to chase prostitutes ­ for VAT

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A High Court judge ruled yesterday that the Vatman is perfectly entitled to pursue prostitutes. Mr Justice Jacob decided that members of the world's oldest profession should not be allowed to exploit a loophole because of their illegal activities and avoid paying value-added tax.

The ruling, while difficult to enforce, raises the prospect of pimps and procurers having to keep accounts for inspection by Customs and Excise, just like any other business.

The case yesterday followed a VAT tribunal last year, which ruled that Robert and Julie Polok's escort agency, Supreme Escorts, was unlawful and therefore could not be taxed.

The tribunal said the business "consists wholly, or at least very substantially, of the procurement of women for the purposes of their becoming common prostitutes".

When the tribunal found that the agency, operating from an address in Ashford, Kent, was "straightforwardly criminal", it meant that Customs and Excise could not claim VAT.

Mr and Mrs Polok, who face a claim for unpaid VAT of more than £130,000, had always claimed their business was lawful but said their turnover was below the threshold for VAT. But the judge overturned the ruling yesterday. He said: "I conclude that this case is not within the very narrow rules which allow moral scruple by a paradox to reward criminality by exempting it from taxation."

Under EU harmonisation of taxation, VAT is payable on a wide range of services without any difference being drawn over whether it is legal or illegal. Only drug dealing and counterfeit money escape being taxed.

Mrs Polok said yesterday that she did not know that a hearing had been taking place and was consulting with her lawyers over the couple's next step. A new tribunal hearing is due to be held to decide whether the business did fall below the VAT threshold.