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Tax on Tips

Uncollected tax on tips - a significant contribution to the tax gap?

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With all of the recent talk about the possibility of introducing legislation to control how tips are dealt with in Restaurants and other industries where tipping is common place, my mind wanders to what must be millions of pounds in lost tax due to the almost certainty that some tip income is not being declared by waiting staff!

Setting aside the general discussion of who has what, it is pretty clear that cash tips left on tables or given directly to waiting staff belong to those staff and not the restaurant and are taxable income to the recipient and must be declared to HMRC. Failure to declare is, of course, serious tax evasion.

We need to put this into modern context as with the introduction of the minimum wage, the argument that tips are essential to augment the income of waiting staff is no longer vaild and in some cases, the tip income is substantial bonus income. One of my clients suggested to me that some of his waiting staff are receivig between £50 and £100 in tips each session and this is quite credible if 10% is taken as the norm.

My calculations are that - say £75 per day for five days a week for 48 weeks a year amounts to £18,000 per annum and if this is not being declared to HMRC the loss of tax is at least £3,600

I remember the days when the Code Numbers of waiting staff were restricted by estimated tip income but I do see any evdence that this happens widely now.

I believe that the mumblings about Tip Legislation will be a bit of a surprise to some when the detail starts appearing as the Goverment are unlikely to miss the opportunity to take more control of the tipping system AND introduce appropriate legislation to ensure significantly more compliance to the taxation of tips taken by waiting staff.

What do others think?




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08th Oct 2018 08:08

Tips can be included in the minimum wage. There was a case on this a few years ago.

I've never really understood tipping myself. I suspect that my judgement is coloured by never having received a tip.

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to lionofludesch
08th Oct 2018 10:11

You've really never had a pair of pyjamas from a client?

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to lionofludesch
09th Oct 2018 01:37

lionofludesch wrote:

Tips can be included in the minimum wage. There was a case on this a few years ago.

The law has been changed on that one Lion. Minimum wage can no longer include tips.

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to legerman
09th Oct 2018 07:33

Well, that's good.

I always thought it was a carp decision, whether or not correct.

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08th Oct 2018 09:29

Hmm. The only client I have where tips is an issue, all tips are processed through payroll, so there's no taxed lost from my client.

And poor Lion. I got a case of beer sent to work a few weeks ago from a client. That was a nice tip to get.

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08th Oct 2018 09:40

Whilst the take from the tables can be quite high from upmarket establishments, once they are shared amongst all the rest of the staff in the kitchen etc its not much per head. id be surprised to see £75/waiter myself.

Most of it is declared anyhow. Its something HMRC tend to hammer on compliance visits, so it always pays to declare a fair portion of them!

I get "tips" from time to time. Usually of the drinking variety. *hic*

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08th Oct 2018 10:16

Like any other low paid job involving cash payments (e.g. window cleaners etc.), this is effectively a subsidy for them to be incentivised to do the job in the 1st place (that no-one else wants to do), so no tax is lost on that basis and many would just be claiming benefits I expect without that "tax free" element (due to the restaurant having to close if they paid a decent wage or otherwise etc.), so you need to look at it all in the round.

If you want to raise taxes from people not paying their fair share you need to look at the other extreme end of society I think. Perhaps a good place to start is here:

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08th Oct 2018 11:04

I think I need to turn myself in.

A long time ago, in a galaxy far, far away, I worked as a barman (though not in Mos Eisley).

I plied this occupation part time right through university (I had graduated from under 18 schoolboy glass washer, cleaner , underpaid gardener and dogsbody) and even after Edinburgh ,the world of work having decided it did not really need any more Arts Faculty graduates , I enjoyed a full time year as a graduate barman before heading back to university to pursue the delights of accountancy.

Whilst tips were not that commonplace throughout most of the year we did open on Christmas Day for a couple of hours, 12.30-2.30, and during that two hour period I would be bought an awful lot of drinks by the regulars and others or have a large number of "keep the change" moments;a pint glass beside the till contained my ill gotten gains.

Over a number of Christmas Days across the years I worked this shift, in say 1978 I might have earned in tips something between circa £5-£10 for that two hour stint, given my hourly rate of pay was then circa 50p an hour and a pint of Export was circa 33p-the Tartan Special was only 30p for good reason- £5-£10 was a lot of money. (To compare, my first year's university grant was £150 for the year)

Having now been guilt tripped by the OP, is there an HMRC disclosure scheme for underdeclared tips from the late 1970s early 1980s?

And whilst coming clean, at the end of every evening shift the bar staff each got a free drink and for a short period in the early 1980s , when we had a pretty rare all day Sunday licence ( 12.30-11.00) ,those who worked the 12.30-6.30 shift (A very, very busy shift as very few places were open) afterwards got a meal cooked for them by the then owner's wife (Italian family-excellent food) and each of us was given a bottle of house red to go with it- hate to say I cannot recall paying any tax on these various staff benefits, in fact most of my Sunday evenings from back then are, justifiably, a little hazy.

(One further tip I got in that job, Rubstic, the 25-1 Grand National winner)

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By Tornado
08th Oct 2018 11:37

A truly shocking confession.

I think it will be the Tower of London for you or perhaps even worse, Edinburgh Castle dungeons where you will be forced to work on the new improved IRN-BRU formula.

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to Tornado
08th Oct 2018 11:53

I am going to throw my ex employers under the bus; it was all their fault, they ought to have dealt with the disclosures then needed etc, these days that appears to be the correct way to deal with these sorts of things; blame someone else.

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08th Oct 2018 12:02

Are HMG really expecting 16/17/18 year old waiters/bar staff working in a pub restaurant to declare their (usually modest- this isn't America) tips?

Dream on.

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