The taxman and tips
The taxman has finally conceded defeat in the long-running tips battle. This battle has been between the taxman on the one hand, and restaurant owners, hairdressers and other parts of the service industry that receive tips from customers, on the other hand. It has been the practice of many such businesses to pay their employees below the minimum wage, with the expectation that this will be topped up with tips. The widely held (and correct) belief was that in most cases, no national insurance contributions (NICs) were payable on the tips. However, the taxman was never really happy with this arrangement. His belief was that tips used to make up an employee's pay should be NICable. He therefore pursued many businesses unpaid NIC on this basis, with at least one going bankrupt.
He has however now seen sense.
He now accepts that it is possible for tips to be used to make up the national minimum wage, without being charged to NIC. The basic rule is, if the employer is involved in administering the tips, then they are NICable. If, however, the tip is paid directly to the employee by a customer, and is not paid through the employer's payroll or shown on a payslip, no NIC is due. There is also no NIC due where the tips are received by a troncmaster (eg a member of staff elected by the staff to oversee tips), as long as the payment is administered by the troncmaster. If the employer gets involved in administering payment (eg through payroll and recording the amounts on the payslip), then NICs become due.
This position has been widely held and argued in the affected industries for a long time. The taxman has only now decided to stop being bloody minded, and to apply the law properly. The Fisherman salutes the taxman for coming to his senses, but cannot help but wonder why he could not have done so sooner. Of course, there is no question of compensation because he refuses to see this wrong interpretation as an error. Rather, it is a 'revised opinion' following further legal advice.
Meanwhile, the golden rule still remains: if you wish to give a tip and don't want the boss or the taxman getting their paws on it, give it directly to the employee.
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