Tax Guide on Tips, Service Charge, and Bonuses

Tax Guide on Tips

Does your job involve tips? Here we take a look at when tips are taxable in the UK…

It is possible that tips you receive at work are subject to tax and National Insurance (NI) contributions, depending on who and how the tips are shared out. Time to learn more about it.

When are tips taxable?

• If they are paid directly to you in cash
• Based on the estimated amount of tips indicated in your Self Assessment tax return
• If they are included in card or cheque payments and paid directly to you by your employer. Your employer will be responsible for ensuring you pay your income tax through PAYE.

• If tips are pooled together and shared out in a tronc. The “troncmaster” or the person looking after the pooled tips will be responsible for ensuring income tax is paid.

When are tips are subject to income tax and NI contributions?

• When an employer decides how the tips will be handled and shared out. Both tax and NI contributions will be paid through PAYE.

In the event that tips are kept in a tronc, HMRC must be informed about it as well as being made aware who the designated troncmaster is.

Service charges, on the other hand, are subject to tax and NI contributions when paid voluntarily instead of compulsory or added to a customer’s bill. The same is true for bonuses, as they are considered part of your income.

Because tax and NI contributions must be paid by employers, paying your wages ‘cash in hand’ without the necessary deductions is considered illegal. In fact, accepting cash in hand payments is grounds to forfeit your employment rights.

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