I have had a couple of queries about accounting and tax treatment of tips recently.

There has been one major development in the last few days, in that the Government has announced that Restaurateurs will no longer be able to count Tips towards the statutory minimum pay of employees. This is a very recent news item and doesn’t become effective until 1 October 2009.

It is well worth a recap of the rules, which I hope all of you will be familiar with:

Basically, if the employer, the restaurant, involve themselves in any way with the handling, control or, distribution of tips, then those tips must go through the payroll!

Most Restaurants therefore prefer not to involve themselves with the collection or distribution of tips. However,

• where there is a compulsory service charge or,
• where tips are paid via credit card or,
• where in fact the owner does control distribution of tips, the Restaurant, must operate PAYE on the distribution of tips.

Not to do this runs a major risk for the Employer, because if a disgruntled ex-employee reports you to HMRC, HMRC will charge YOU for 6 years missing PAYE, not the employees. Similarly if an Inspector of Taxes finds that you have been collecting tips through the credit card system but not operating PAYE on tips HMRC will charge YOU for 6 years missing PAYE – grossed up, plus interest and charges.

Many large Restaurant chains, and several of our clients, collect Tips, record them as income and add them to employees pay. They have however been counting tips paid through the payroll, towards the statutory minimum wage. This is now to be banned.

Our clients should be aware that news items about this are likely to make employees more aware of their rights, perhaps more disgruntled, perhaps more likely to tip off HMRC of any perceived mistreatment.

It is possible that several of our clients should be operating PAYE and are not. If you think that might apply to you please make an appointment and come in to see us.

If the Restaurant does not manage the distribution of tips but somebody else does, then this person, known as the Troncmaster

• must be reported by the restaurant to HMRC,
• must operate a payroll on the tips distributed,
• there is no NI on Tips distributed by a Troncmaster.

Again, it is possible that this system must be operated by several of our clients but neither ourselves nor Crosse and Co operate PAYE for any Troncmasters!

If the waiters or waitresses are allowed to keep their own tips then no PAYE needs to be operated, No NI is due, and it is the employee who is due to pay Income Tax. Again I am not aware of a single client, who is a waiter or waitress reporting their tips. I must say that whereas I think investigations of Restaurants are quite probable, investigations of individual Waiting staff are incredibly unlikely.

Please remember that VAT is also due on tips if a customer must pay a service charge, even if the service charge is fully passed on to the staff. Only if a customer leaves a tip voluntarily, then no VAT is due (even if the customer asks for the tip to be shown on the bill to perhaps support an expense claim).

To discuss your position with someone at Hornbeam please ring 01603 720424 and make an appointment to see Phil Needham, Andrew Bloy or James Sharpe. If your payroll is operated by Crosse and Co you may prefer to call Sara on 01362 850630.

Unqualified Accountants – A Warning

Over the last year we have lost a couple of valued Catering Industry clients to unqualified individuals who have presented themselves as Accountants. The quality of the communication from these individuals has been extraordinarily poor, and it has upset us to think of our ex-clients being poorly advised and represented.

HMRC inspectors know which agents are competent and which are not. They almost certainly target a higher level of investigations against the clients of incompetent agents, and achieve higher success rates, from those investigations.

Our firm spends several thousand pounds each year on training and continuing professional development for our staff. It is unlikely that an unqualified accountant will make any such investment. We have decades of experience dealing with catering industry clients. We have developed systems and personnel structures to ensure that we provide the highest levels of cost efficiency compatible with quality and reputation. We benchmark our costs against those of our rivals regularly and we know that compared to other reputable firms our prices are exceeding competitive.

So if you are approached by rivals, please consider (1) are they properly qualified and (2) do they have the reputation, training, and experience to properly represent your interests.

Disclaimer
Most of the information contained in this bulletin is of necessity greatly oversimplified. We are trying to bring to your attention tax planning and business management opportunities. However, you should not take action based upon this leaflet without obtaining specific professional advice.

Whether you are a client or not, if we can provide further help or advice concerning any of the matters covered here, please do not hesitate to contact us.

Back to Niches