Tips and gratuities should go to staff not the employer

The Government is to make it illegal for companies not to pass on tips to their employees. This comes after some major restaurant chains were accused of keeping 10% of tips given to staff.

The Department for Business Energy and Industrial Strategy (BEIS) have announced that new legislation, to be introduced within a year, would help about two million people in the hospitality industry. An updated consultation response was published on 24 September

The current rules for taxing tips, gratuities and service charges are complex and, whilst all tips are taxable, national insurance does not currently apply where the payment is given directly to the staff member.

Current HMRC guidance on the taxation of tips, gratuities and service charges

Next steps

Get in touch with your VAT questions, or find out how our specialist leisure industry accountants help businesses like yours.

See: Tipping, gratuities, cover and service charges consultation: government response (publishing.service.gov.uk)

See: Tips at work: Tips and tax – GOV.UK (www.gov.uk)