* * * * * * * * * * * *
  Who Do I Ask?   Tourism Training for Wales *
Cymraeg  |   Contact  |   Register  |   Site Map *
  *
Information resource for the tourist industry in Wales.   *
* * * * *
Search - Who do I ask about...? *
* * *
  *
* *
Starting Up
Customer Care & Quality Control
Bedroom Browser Benchmarking Disabled Customers Display / Tariff Service Charge Food
Employing People Finance & Funding Health & Safety Regulations & Legal Sales & Marketing Tax Tourism Industry & Suppliers Training 		*
* *
Visit Wales logo
this is the ESF logo
 *
* *

TIPS, GRATUITIES AND SERVICE CHARGES

Tips/gratuities and service charges are a potential minefield for owners of service sector businesses. Whether they are liable to tax and National Insurance (NI) contributions depends on how they are collected from the customer.

Tips are voluntary additions to charges made by the customer to a hotel or restaurant. They are a reward from the guest to the serving staff concerned – they can be left on the table for serving staff or collected via a central ‘tronc’. If a business operates a tronc then it must be administered by a nominated troncmaster who is a member of staff and independent of the employer. If the employer has no say on how the tips are shared out then they are not subject to NI contributions, they are however subject to tax. If they go directly to the employee then the employee is responsible for paying the tax. If they are shared out by the troncmaster, then the troncmaster is liable for paying the tax.

Service charges, in contrast, are compulsory additions to the price charged for a service and are generally between 10 and 15% of the price and are collected by the employer. Service charges shared with employees via the payroll are liable to tax and NI contributions.

In some business, especially hospitality businesses, arrangements for tips/gratuities are set out in employee contracts. Where an employment contract guarantees a tip then they are liable to tax and NI contributions. Whether service charges are distributed to employees should be negotiated locally between employers and employees but if they are distributed then they are subject to tax and NI.

HM Revenue & Customs have detailed guidance on service charges & troncs in their leaflet E24: Tips,Gratuities, Service Charge & Troncs go to www.hmrc.gov.uk and type tronc into the serach facility. This will bring up the relevant information.

Tips and service charges are a difficult area to account for and mistakes related to them can be expensive. Ignorance is no defence! If you are any doubt then you should seek professional advice, especially with regard to tax and NI contributions.

If you would like to download this document please click on one of the links below:

Service Charges (Word Document Kb)
Service Charges (PDF Document Kb)

tAX AND NATIONAL iNSURANCE

Service charges and tips are a potential minefield.

If you are making a service charge then it must be shown clearly on price lists.

If your business operates a ‘tronc’ then this must be managed by a member of staff, e.g. the Head Waiter who is the nominated troncmaster, not management.

Tips and payments from the tronc to employees are not subject to NI contributions but are subject to tax, which must be declared either by the employee or the troncmaster