April 2022, HMRC are publishing an update to the E24 guidance on tips, gratuities, service charges and troncs – in addition to the updated Tips at work guidance published in November 2021.
The updated guidance will reflect a shift towards customers paying tips electronically, such as through digital applications designed for this service.
The guidance outlines that a payment being made in this way does not change any of the basic principles for deciding how tax is to be accounted for on those tips and whether a National Insurance liability arises.
Where the employer collects the tips and pays them to employees, the employer is required to deduct income tax and NICs from these earnings.
Where customers pay tips directly to staff, each employee is responsible for declaring these earnings to HMRC who will adjust the employee’s tax code to collect the tax due. These payments are not subject to NICs.
There are also separate rules for payments made through ‘TRONCS’.
The guidance will be of interest to both employers and employees in a number of sectors, but principally hospitality. Employers in affected sectors are asked to help signpost employees to the updated guidance and to seek further advice if anything isn’t clear.