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An Inspector calls
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Making adjustments
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You may not give a second thought to the tax treatment of the tip you leave in a restaurant - many people probably think of it as 'cash, not a word to the taxman'. But it's money the waiting staff earn from their employment, and it's certainly taxable. There is a rule which allows tips to be exempt from National Insurance - legally, rather than just 'by the back pocket' - and the Revenue have just accepted that they were operating the system too harshly. If tips are pooled and distributed by someone other than the employer, they count as not coming from the same employment for NIC, and you don't have to pay NIC. That's a huge saving - employee's contributions at 11% and employer's at 12.8%. The pooling of tips is called a 'tronc', and the person who dishes out the dosh is called the 'troncmaster'. PAYE income tax has to be taken off, and it's all done by the book - but there's no NIC. If the employer controls the tronc, then all the money is treated as coming from the employment, and there is no saving. The Revenue have been arguing that any interference at all by the employer meant that NIC was due on everything - so retaining some of the tips to cover credit card charges, or to cover a contractual promise of a certain level of pay, would lose the benefit on all the money. They have now dropped this argument, but it's still important to do the right thing if you are running a restaurant and want to take advantage of the tronc rules. We can advise you.  |