When starting up a hospitality business, it is important to factor in that some customers may choose to tip members of staff.<\/p>\n
<\/p>\n
This poses the question of how tips should be distributed between staff, with the consideration of who will organise the process.<\/p>\n
However, ahead of this, you may be wondering how tips are categorised, along with if they are liable to tax.<\/p>\n
Whilst some may think that a tip is exempt from taxes, they do in fact class as revenue, thereby categorising them as taxable income.<\/p>\n
Therefore, income tax and National Insurance Contributions (NICs) may apply to tips, dependent on the way that the tips are distributed.<\/p>\n
Tips paid directly to staff <\/strong><\/p>\n Should employees receive any cash tips directly from customers to be kept to themselves, they would be responsible for reporting the amount to HM Revenue & Customs (HMRC).<\/p>\n This could impact the employee\u2019s tax code, dependent on the amount earned. The employer would then need to deduct the correct level of tax from the employee\u2019s wages.<\/p>\n However, neither the employee nor employer would be required to pay NICs if the employee reports the amount directly to HMRC.<\/p>\n Tips distributed by the employer<\/strong><\/p>\n Alternatively, the employer can collect the tips themselves, to then decide how these should be distributed.<\/p>\n For this option, the employer is liable to include the tips when organising PAYE, for the correct amount of tax to be paid, along with NICs.<\/p>\n Using a tronc<\/strong><\/p>\n When tips are paid via card, they can be easily added together and put into a scheme, known as a tronc, to be distributed by an external party (known as a troncmaster).<\/p>\n With this, the employer has different options for who decides the distribution of tips, which impacts who is responsible for paying the tax, along with NICs.<\/p>\n In the case that the employer decides how the tronc should be divided, they are liable for paying PAYE and NICs.<\/p>\n If someone independent from the business decides how the payments are distributed, the troncmaster will pay PAYE and no NICs are due on the amount (both for employers and employees).<\/p>\n Alternatively, the troncmaster can decide how the money should be divided between employees, in which they are responsible for paying PAYE tax, with no NICs being due.<\/p>\n Are you in the hospitality sector and need more advice? Contact our experts today. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" When starting up a hospitality business, it is important to factor in that some customers may choose to tip members of staff.<\/p>\n","protected":false},"author":2,"featured_media":4666,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,30,56,31,25,4,26],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/4664"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=4664"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/4664\/revisions"}],"predecessor-version":[{"id":4665,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/4664\/revisions\/4665"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/4666"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=4664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=4664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=4664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}