Tips Galore: everything you need to know about receiving tips

Working on the frontline in hospitality, it’s common to receive tips. Bartenders, waiting staff, housekeeping staff and others, often find tips invaluable. Usually on, or close to, minimum wage, it is tips that boost their income.

However, there’s a great deal of confusion about how hospitality workers should manage their tips. Do you need to pay tax on tips in Northern Ireland? Does your employer have to share tips paid on a card with you? In this article, we’ll answer these questions and others.

A quick word about tips v service chargers

Customers give tips voluntarily, for the service they’ve received. They can be collected individually or in ‘tronc’. This simply means via a collective method. Think of it as the jar on the counter. It’s to be shared out amongst staff, by an employee (the tronc master), not the employer.

In both these cases, employers don’t get to say how the tips are shared out. They are therefore not subject to National Insurance (NI) but are liable for the tax.

Service charges are different. They are a compulsory addition. They are collected directly by the employer. If they are then shared with the staff then they are subject to both NI and tax. Employers, at present, get to choose how the service charge is shared.

There is a Code of Best Practice covering how employers should handle tips. It’s great guidance, but it’s not compulsory.

Tips and tax

Tips cannot count towards your minimum wage. So, your employer must be paying you the current National Minimum Wage (NMW) before you add any tips on top.

Generally speaking, you have to pay Income Tax and sometimes NI, on tips.

If the customer pays the tip directly to you, in cash:

In this instance, you pay tax but not NI. If you complete a Self Assessment tax return, it’s your responsibility to declare them. If you are paid via PAYE, then the employer will give info to HMRC which they use to estimate your tax based on earnings and tips.

If the customer includes the tip on a card payment:

In this instance, it’s the employer’s job to make sure your Income Tax is paid correctly on tips, through PAYE.

If the customer pays the tip into a tronc:

In this instance, the tronc master is responsible for making sure that Income Tax on tips is paid. The employer has to tell HMRC if there’s a tronc, and if so, who the tronc master is.

Do you have to pay NI on tips?

You have to pay NI on tips if your employer is the one deciding how tips are shared out amongst the staff.

Ignorance is not bliss

Many in hospitality simply view tips as like bonuses, received cash-in-hand. However, this isn’t right and you do have to play by the HMRC rules. You can’t claim that you don’t know about it. They will catch up with you, and they will make you pay what you owe.

This message is equally important for both employers and hospitality workers.

Will workers in Northern Ireland benefit from the fair tips legislation?

Unfortunately, whilst there’s a new law on the agenda regarding fair tip arrangements, Northern Ireland isn’t set to benefit from it. If brought in, it will ensure that hospitality staff in England, Wales and Scotland, receive 100% of their tips when they are paid by card.

Our recommendation to you is that, if your hospitality employer is not paying tips fairly, consider a job move. Get in touch with us, and we will help you find a new position in hospitality with a fair employer.

If you’re concerned about how your tips are paid, or how your employer handles your tips, then get in touch with ACAS.