Gratuities At Work
If you are an Employer or Employee enjoying success in peak season for hospitality industries, you are hopefully reaping the rewards of your hard work as the sun beats down, this may come in the form of tips for staff, but are you in the know when it comes to tax and staff gratuities? Our handy guide will ensure that you know how to handle tips come rain or shine.
Employees and employers in sectors prone to receiving tips for example hospitality need to be cautious – there is no such thing as a free lunch, so if employees are receiving income from tips , tax is applicable and national insurance may well be too. Tips do not count towards wages, therefore employees basic wage must meet the applicable national minimum wage.
As an employee you need to pay income tax on any tips you receive, if you receive a cash tip direct from a customer National insurance is not applicable. If you are registered for self-employment, you will need to maintain a record of tips received and then include the total figure for the tax year 6th April- 5th April in your tax return. If tax is collected through your tax code- via PAYE, HMRC will estimate the figure based on information provided and collect it through your tax through PAYE in the same way that your income is taxed. Again we recommend keeping an accurate record for each period that tips are paid, annotating absence or variances that effect the tips you receive and whether paid direct from a customer or via your employer using a shared system.
Tips Paid using card or cheque
If an employer accepts tips via card transactions or included in a cheque payment, they are liable for ensuring the income tax due is paid and must do so through PAYE.
Where tips are pooled together and shared, this will be known as a ‘tronc’ and must be ‘controlled’ by a ‘troncmaster’ who will total them and share out in line with the workplace standard. As an employer, you must make HMRC aware that there is a tronc and who the troncmaster is, it is best practice to have a policy in place which should cover;
• Tip Share e.g. if it is calculated by a percentage relatable to hours worked.
• What happens when employees are absent eg Maternity Leave, Generally Absent/ Sick
• Do all employees receive a share or are you exempt if during a probationary period
• Are employees allowed to accept direct tips from customers, what action applies if not
• Deductions eg if an employee makes an error that costs the business money, can this be deducted from the tips
Are you unsure of how you can handle tips as an employer or are you an employee in receipt of tips wanting to know how best to record them satisfactorily for HMRC, Avanti can help you. For a no obligation advice meeting, give us a call today (08000) 388 799