How your tax is worked out, and whether you have to pay National Insurance, depends on who:
- the tips are given to
- decides how the tips are shared out
Cash tips paid directly to you
If you get cash tips directly from a customer, you have to pay tax on them but not National Insurance.
If you fill in a Self Assessment tax return, you have to include the tips on it.
If you don’t fill out a tax return then HM Revenue and Customs (HMRC) will estimate your tips based on information from you or your employer. HMRC will give your employer a tax code so they can collect tax through Pay As You Earn (PAYE). This is where tax is taken from your wages before you get them.
Contact HMRC if you think your tax code is wrong.
Tips included in card or cheque payments
If your employer pays these to you directly, they’re responsible for making sure Income Tax is paid through PAYE.
Sometimes the tips are pooled together and shared out - this is called a ‘tronc’. The person who looks after it is called the ‘troncmaster’ and they are responsible for making sure Income Tax is paid.
If your employer decides how the tips are shared out, National Insurance is due as well as tax. Your employer is responsible for making sure it’s paid through PAYE.
Your employer has to tell HMRC if there’s a tronc and who the troncmaster is.
HMRC has detailed guidance on tips and troncs if you’re the troncmaster.
These are added to the bill before it’s given to the customer.
If the charge is compulsory, it’s not a tip so if your employer gives it to you, it’s treated in the same way as your wages.
If it’s voluntary, you pay tax and National Insurance in the same way as for tips.
These are part of your pay and you’ll pay tax and National Insurance on them through PAYE.
Cash in hand wage payments
It’s illegal for your employer to pay you your wages ‘cash in hand’ without deducting tax and National Insurance contributions.
You risk losing your employment rights if you accept cash in hand payments, and may have to pay the tax and National Insurance contributions yourself.
Report your employer if you think they are not paying tax or National Insurance contributions on your wages.