Is the taxman taking tips for waiting staff?

If you are the type of person who agonises over how much tip to leave, then spare a thought for the poor waiting staff who have to deal with the taxman trying to take a slice of their hard earned tip.

Much of the focus on poor tipping practices has been aimed at restaurant managers of late, with reports that some restaurants levy an 'administration fee' for collating and redistributing tips.

And we've all heard stories of greedy managers who hoard all the tips for themselves.

The problem has got so bad that business secretary Sajid Javid has said he's going to take a serious look at the issue of tips in order to protect employees. But, according to Baker Tilly, he should be looking closer to home for the tip thieves.

It might be that the taxman is actually the one skimming off the tip, and not the restaurant owner. The problem is the onerous tax and national insurance rules on tips.

There isn't a problem with whether tips are taxable as income, they are, but that tax is collected differently depending on who determines how they are shared.

If the employer receives the tips and shares it out then tax must be deducted under PAYE (the system where income tax and NI is taken) but if they simply pass the tip to the employee then it isn't under PAYE and the employee must pay any tax due on their tax return.

There are two further scenarios where NI is not due: when the employee does not have a right to a fixed sum for tips and where tips are not a compulsory service charge.

Typically, employers only get involved in tip redistribution to ensure those in the kitchen, behind the scenes, get a fair share.

The whole system is quite ludicrous and HMRC's insistence that employers who share out tips should pay as much as 13.8% in NI is ridiculous for a couple of quid in tips.

Let's face it, we'd all rather the waiting staff got to take a couple of pounds extra home in tips than face higher prices in restaurants because businesses have had to either bring in new systems or absorb the tax cost of tips for employees.

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