Tax + Tips

New rules, recently introduced, outlaw using tips to form part of the minimum wage paid to staff.

In 2008 the court agreed with HMRC that a prominent London restaurant could not include tips to support payment of the minimum wage to its staff. Working in such a prestigious environment for less than the minimum wage appeared grossly unfair. The thought of any staff working hard, to a high standard of service amongst the serious affluence of the clientele – for a pittance, relying on the benevolence of customers to top-up their earnings to the minimum wage would draw considerable sympathy. Few tears were shed, however, and sympathy waned when it was realised that most, if not all, of the staff involved were higher-rate taxpayers resulting from their wages + tips.

The new rules are set out in a revised HMRC leaflet E24 Gratuities, Service Charges and Troncs

It is important to realize that PAYE must be applied to the payment of tips to staff if they are paid in an organized way. They fall under the normal payroll if payment is organized or controlled by the employer. If someone other than the employer (a Troncmaster) organizes the payment, it is the Troncmaster who must deduct tax and account to HMRC.