New Changes to Tips and Service Charges
The way that tips and service charges are managed has been changed. As from 1 October 2009 tips, gratuities, and services charges can no longer form a part of the national minimum wage of any staff who receives those payments. This change also includes service charges. This rule applies even if the service charge is a compulsory part of the customer's bill. Her Majesty's Revenue & Customs has issued leaflet E24: Tips, Gratuities, Service Charges and Troncs to provide guidance on this point.
Any tips that are paid directly to staff by the customers need to be declared. The amounts received in tips should be included on self assessment forms as part of tax returns. Declaration of tax is the employer's responsibility. The employer is liable for both NICs and PAYE for each employee. Such circumstances cover instances where the tip is paid to the employer, perhaps as an additional amount paid by either debit or credit card bill, and the employer decides how to distribute the total tips pooled (known as the tronc), amongst staff.
In circumstances where someone else manages the tronc, perhaps the manager who is not the employer, that manager must deduct PAYE but not NICs from the payments of tips to staff.
There are financial penalties attached to the new rules, it therefore important to ensure that your business does not fall foul of Her Majesty's Revenue & Customs.
