Tips, Service Charges and Gratuities
Ever wondered what happens to your tips? Often when we feel we have received a good service in a bar, hotel, restaurant or taxi etc. we want to leave a tip……. but who receives the money in addition to their salary?
Previously any tips paid by the employer to the employee formed part of the employee’s salary. However, since the introduction of the National Minimum Wage regulations 2015 (as amended) this is no longer the case.
If a tip, service charge or gratuity is labelled as “discretionary” or as a “suggested amount”, then there is no legal obligation on you the customer to pay it, and you are entitled to ask for this sum to be removed from your bill. However, and perhaps surprisingly, in a restaurant you have no legal authority to insist that your tip goes directly to your waiter or waitress. On a practical basis, some establishments share the tips paid by credit or debit card between all staff, whereas cash is assigned to your server.
Does tipping attract PAYE and NI contributions?
If you gave cash tips voluntarily and directly to the person providing you with a service and their employer is not in any way involved in this transaction, any responsibility for PAYE and National Insurance contributions may not be relevant and generally speaking that tip will not attract VAT.
However, if the employer is in some way responsible for distributing the tips amongst staff, then PAYE contributions may be required.
The code of best practice on Service Charges, Tips, Gratuities and Cover Charges provides comprehensive guidance on how to tip fairly. This is a transparent operating guide for both customers and employees and sets out the obligations on businesses to provide their customers with information regarding how tips are handled and also provides guidance for employees. This is a voluntary code, however those businesses who sign up to it are expected to comply.
Click on the link for the full version of the document.