Tax and NIC treatment of tips and gratuities
HMRC have released a new booklet entitled ‘Tips, Gratuities, Service Charges and Troncs’ which has been designed to cover the treatment of such items in relation to income tax, national insurance and VAT. It is aimed at employers and those responsible for arrangements to share tips etc amongst employees in the catering and service industries.
The booklet includes definitions of tips, gratuities and service charges and also provides an explanation of what a tronc is and how it works. The booklet contains fifteen different examples intended to explain the correct tax and NIC treatment of tips and other monies given to bar and restaurant employees.
And the booklet also makes clear the position from 1 October 2009 whereby payments to employees of tips, gratuities, service charges or cover charges paid by customers do not count towards national minimum wage pay. This is the situation irrespective of any written or oral agreement between the employee and the employer.