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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Employment income: tips and gratuities: troncs

Section 62 ITEPA 2003

Tips and gratuities received by taxi drivers, postmen, hairdressers, waiters, etc, in respect of services they have provided are taxable as earnings within Section 62 ITEPA 2003 (see generally EIM00520 onwards).

In Calvert v Wainwright (27TC475) a taxi driver employed by a taxi hire company was held to be chargeable in respect of tips he received. Atkinson J said:

“Tips received by a man as a reward for services rendered, voluntary gifts made by people other than the employers, are assessable to tax as part of the profits arising out of the employment if given in the ordinary way as a reward for services.”

An employee may claim their tips are not chargeable because they are ‘personal gifts’. But when a tip is given to an employee personally that only means it is given to them for their own benefit and not for that of the employer. It is only a gift that is given on personal grounds that is not chargeable. That is because it is not then ‘from the employment’ (see EIM01450 and EIM01460).

A tip taking the form of goods will not qualify for exemption under Section 324 because it is a payment in recognition of services performed (see EIM21715).

Troncs

In the catering industry, tips are sometimes distributed by a “troncmaster”, who is responsible for operating PAYE. Detailed guidance on troncs is provided in the PAYE Online Manual (POM) - search for “Tips, Gratuities, Service Charges And Troncs”.