Is Tax Applied Before Or After Service Charge

Tips, gratuities and taxation – advice for pubs and restaurants

If you own a pub or restaurant, or y'all piece of work in one, you lot might be somewhat confused with how taxation is worked out on tips, gratuities and service charges.

At Perrys, our London-based hospitality specialist, Alex Skinner, is an skillful in providing accountancy advice for pubs and restaurants. Here, Alex answers some frequently asked questions about tipping and tax, and offers his advice on how pubs and restaurants can simplify the tipping process.

Practice I really need to pay tax on my tips?

Sadly, the respond to this question is most definitely 'yes'. Whether your tip is given to y'all as cash in manus or it is paid electronically by the customer, all tips are subject to Income Tax. Depending on the type of tip and how it is distributed, you may also have to pay National Insurance contributions too.

Are tips and service charges the aforementioned thing?

No. Service charges are added to the bill before information technology's given to the customer. If a service charge is a compulsory payment, it won't be classed as a tip and will be treated in the aforementioned style every bit your wages.

However, if a customer chooses to pay the charge voluntarily, the same rules will apply to those for tipping.

How is tax on my tips worked out?

It all depends on how you lot receive the tip equally to which taxes will apply. It's important to establish who volition be responsible for making sure the revenue enhancement is paid – otherwise you could end up over-paying tax, or, even worse, existence fined.

For example, if you are given cash tips directly by customers, it volition be downwardly to yous to make certain you declare these in a Cocky Assessment tax return. If you don't do this, and then HMRC will estimate your tips on your behalf based on information supplied by you and your employer.

However, if an employer pays yous tips directly, dissimilar rules volition employ.

What happens if a customer tips using a card or check?

Any tips that are paid electronically can exist added to your pay by your employer. If your employer chooses to exercise this, they volition exist responsible for making sure your Income Tax is paid. However, the bad news is, any tips paid straight by your employer, including greenbacks tips that are collected on your behalf, volition also incur additional tax in the form of National Insurance contributions.

What happens if tips are pooled together and shared out?

This is chosen a 'tronc' payment and it's a not bad manner to simplify the tipping procedure and make paying taxation easier. All the same, there are some rules and possible pitfalls to administering such a organisation that y'all should exist aware of. The skilful news is that whilst Income Revenue enhancement still needs to exist paid on a tronc organization, the scheme is exempt from National Insurance contributions.

To ready a tronc, you first need to find somebody who is willing to exist appointed as a 'troncmaster' – this is oft an employee. The troncmaster takes responsibleness for collecting all staff tips and service charges into a central pot and making sure they are distributed to staff.

The troncmaster volition demand to determine how tips are shared out – normally through a consultation process with other staff members. Bear in heed this could hateful some tough decision making, such as who should and shouldn't receive tips and whether they are divided equally. The troncmaster will as well be responsible for making sure the staff are paid their money, which is usually washed via the payroll. Companies are allowed to deduct money for administrative costs - such as carte du jour fees - just many will absorb the costs and distribute 100% of tips to staff.

Whichever method a company chooses to distribute tips, it'due south always wise to consult a professional, such as Alex hither at Perrys Chartered Accountants, to ensure yous are complying with any tax regulations.

To find out more than about how Perrys can help you with your accountancy requirements, please get in touch.