Marvin OnumonuHMRC has issued a warning to workers receiving tips, highlighting that all tips are subject to Income Tax and potentially National Insurance (NI) contributions.
The guidelines for reporting taxes and NI differ based on how the tip is paid and workplace practices.
According to the Low Incomes Tax Reform Group (LITRG): “If an employee gets cash tips directly from a customer without the employer being involved, the tips belong to the employee.
“This includes any change left on the table by a customer for the employee, any cash handed to the employee and any money left in a tip box or dish by the till to be informally shared out (in which case, it belongs to the employees as a group).”
They further explained that tips are considered employment income.
The LITRG added: “Although tips do not count as ‘income’ towards the national minimum wage – meaning that you should receive the minimum wage with any tips on top – cash tips should not be thought of as a ‘gift’.
“Rather, they are classed as employment income which means they are taxable (but not subject to NIC) on you.”
The group added: “Although they are taxable, there will not be any tax deducted from them.
“This means you are responsible for telling HMRC about these tips,”
PKF Francis Clark’s chartered accountants said: “Tips and voluntary service charges are subject to income tax, just like regular wages.
“If given to the employee in the form of cash directly from a customer, the employee will need to report their tips as part of their taxable income when filing their annual tax return.”
