Slightly worrying

Speech: Dean Russell MP Proposes Tips Bill To Parliament
During the Presentation of Bills in the House of Commons, Dean proposed a Tips Bill that would prohibit employers retaining tips and gratuities intended for staff, and make provision about the division of tips and gratuities between staff.

There are common law provisions here. A statutory basis over rides those. Get those statutory changes wrong – which we can’t see as there is no published bill as yet – and the tax status of tips could be irretrievably changed.

Currently tips pay no NI nor VAT, they pay only income tax. A service charge – the alternative class or description – pays all three. What’s the betting this does get screwed up?

9 thoughts on “Slightly worrying”

  1. “Currently tips pay no NI”

    Not necessarily so. Depends who distributes them.

    If tips are retained directly by the employee concerned, no NI is due.

    If tips are collected and distributed by the employer NI is payable.

    If tips are payable to a tronc (a pay arrangement separated from the employers payroll and run by a person other than the employer – typically the head waiter – who is known as a troncmaster) and distributed by the troncmaster, then no NI is due.

  2. Yes, or as I put it, the difference between tips and a service charge. If the employer is doing it then it’s a service charge for tax purposes…..

  3. You’re missing the point. Voluntary tips which were collected and distributed by the employer would still attract NI. NI is determined not by whether it’s a mandatory service charge or a voluntary tip but by who collects and distributes it.

    If a restaurant operated a system with a mandatory service charge of (say) 10% which was passed to a troncmaster to allocate, then those payments to staff would not attract NI.

  4. No, I’m not missing the point at all. I went through this back when I did the job.

    I’m using “service charge” to mean that it’s allocated by the management, “tip” to mean by the staff. At which point we entirely agree.

    However, there’s another difference here. Mandatory is simply a charge by the restaurant. Tip is voluntary. This also makes a difference. Which is why so many places have “we’ve added a recommended” and you can ask them to take it off.

  5. Problem is, I don’t think politicians would regard making something taxable as screwing it up.

  6. The tipping game is likely done when cash is finally done. The whole issue is only “slightly worrying” because we’re talking about a traditional incentive scheme that’ll be replaced with some other reward system if there is a specific requirement (quite why waiters should get tips but supermarket home delivery drivers not is a mystery).

    [Michael Lonsdale / Hugo Drax voice]

    I believe the proper economics approach to this sort of thing is “jobs are a cost not a benefit”.

  7. One can, of course, decline to accept the “recommended” service charge and hand the waiter/waitress some cash but it’s made a hassle: there’s a chance that such a cash tip wouldn’t even pay income tax

  8. Given the minimum wages now is there an argument for not tipping anymore or at a substantially lower rate.
    I know some places a few years ago toyed with a no tip policy after they saw declines in custom after prices rises caused by minimum wage increases. Not surprisingly it turned out people were factoring in the 15% tip when considering eating out.

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