Tips

It is important for an employer to know when tips provided for their employees should be subject to ITIP in order to avoid being liable for any tax that should have been deducted.

An employer should add the amount of any tips to an employee’s gross pay and subject them to ITIP in the following circumstances:

• if the employer operates a scheme that pays their employees tips or service charges from customers;
• if the employer decides or influences, directly or indirectly through another person, how tips should be distributed amongst their employees;
• if there is any distinction between the way in which directors and employees take their gratuities;
• if the employee has a contractual entitlement to a share of the tips.

In these cases employers should maintain records of any tips that have been subject to ITIP deductions. The records may be required for inspection and failure to provide them may render the employer liable to a £250 penalty.

However, if an employee receives a tip without ANY involvement or influence from the employer, it is not subject to ITIP. In this case, the individual employee must record the total of these payments on their personal income tax return at the end of the year. This applies to the following tips:

• those paid directly by a customer;
• those left on a table by a customer after a meal;
• those paid through a gratuity put into a staff box or group pot.

If an employer is unsure of how to treat any tip or gratuity, they should contact the Division to clarify whether or not it should be paid via the payroll and subject to ITIP.