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Tips and Service Charge Changes

Newsletter issue - November 2009.

From 1 October 2009 tips, gratuities, and services charges cannot form part of the national minimum wage of your staff who receive those payments. This applies even if the service charge is a compulsory part of the customer's bill. The Tax Office has reissued leaflet E24: Tips, Gratuities, Service Charges and Troncs to explain this point clearly.

If tips are paid directly to your staff by the customers, those employees should declare the amounts they receive in tips to the Taxman on their personal tax returns, but you don't have to worry about the tax situation. Where the tip is paid to you as the employer, perhaps as an additional amount on the credit card bill, and you decide how to distribute the total tips pool (known as the tronc), among your staff, you must deduct both PAYE and NICs at the relevant rate for each employee.

Where someone else manages the tronc, perhaps the restaurant manager who is not the employer, that manager must deduct PAYE but not NICs from the payments of tips to staff. Please talk to us if you uncertain about how to handle tips paid to your staff.

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