Tax and Tips: The Lowdown
By Kat Hill | 04 July 2018 | Expert Advice, Feature
Top tip or not to tip? Your clients may be asking that question, but do you know the HM Revenue and Customs’ stance on that little something extra?
A recent survey from www.onbuy.com revealed Britian’s most tipped profession, as well as consumer’s tipping habits. After asking over 2,000 participants, it was revealed that 62% of respondents tip after a trip to the beauty salon, in comparison to the 73% that give a little extra to their hairdressers.
According to the government’s website, you should be paying Income Tax on any tips received, and in some cases you may also be required to make National Insurance contributions as well.
“How your tax is worked out, and whether you have to pay National Insurance, depends on who the tips are given to and who decides how the tips are shared out,” states the website.
“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.”
Tips that are included in card or cheque payments are worked out differently. “If your employer pays these to you directly, they’re responsible for making sure Income Tax is paid through PAYE,” states the website.
“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.”
For more information, visit www.gov.uk/tips-at-work
You can read more on page 68 of the July edition of Scratch – get your hands on a copy here!