Tips - Tax and National Insurance consequences.

If you work in a business where customers pay tips for good service, the receipt of the tip is always related to your employment and therefore potentially taxable!

National Insurance is somewhat different.

If the tips are paid direct from the customer to employee, generally no national insurance is due.

If the employer collects and distributes the tips, national insurance will be due.

If the tips are pooled and passed to an intermediary (a "tronc master") to distribute to the staff, national insurance may be avoided if the employer takes no part in the distribution of the tips.

For employers the risks of ignoring their responsibilities to deduct tax and national insurance can be severe. If deductions were due and not paid on the due date, certainly by the end of the relevant tax year, then both employees and employers deductions become a liability for the employer. Interest and penalties may also be applied.

If you have concerns that you may not be applying correct procedures to the payment of tips in your business do call.