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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: particular occupations: tips and gratuities

The tipping of waiters and others working in hotels, restaurants, clubs etc is an expected feature of the hotel and catering trade.

As well as their normal wages/salaries, employees of these trades can receive considerable additional amounts in a variety of ways, for example

  • retaining cash tips left on tables or handed directly to them by customers
  • receiving a share of cash tips through a pooling arrangement
  • getting a share of tips or gratuities included in cheque, credit or debit card payments made to the employer
  • getting a share of any service charge made to the employer.

All these amounts are assessable to tax on the employees, and the direct employer or a troncmaster (COG908520) may have an obligation to operate PAYE. The direct employer may also have NICs obligations, but that will depend on the particular arrangements.

You should familiarise yourself with the guidance at

  • PAYE72080 - Tips, Gratuities, Service charges and Troncs
  • Chapter 2 of the CWG2 booklet, Employer’s Further Guide to PAYE and NICs
  • Booklet E24 (HMRC Website) - Tips, Gratuities, Services and Troncs.

Establish what arrangements exist for

  • collecting, pooling and distributing tips and gratuities including
  • any sharing of sums paid as part of cheque, credit/debit card transactions and service charges.

If the employer has failed to deduct tax or NICs correctly, you should

  • seek recovery and
  • if payments were made to potentially non-liable employees, consider a claim that the employee’s tax liability is less than is legally due from the employer, see COG906560.

Where you discover that employees are receiving significant sums directly from customers and so the employer is not obliged to operate PAYE, you should pass the details to the PAYE section. Note: For pay reference periods starting on or after 1October 2009, tips, gratuities, service charges and cover charges will not count towards a worker’s national minimum wage pay in any circumstances.

Where it is discovered that employers are counting these payments as part of the workers national minimum wage pay, you should

  • notify the National Minimum Wage Central Information Unit, see COG904612.