Share this content
0
1094

Tips recharged to tenant

Vat position?

Didn't find your answer?

Search AccountingWEB

I have a client who has a food stall in an eatery. (For anyone who doesn’t know, multiple food venders/stalls around the edge of a big hall, communal seating in the middle. It’s order & pay at the stalls, communal waiters on landlord’s payroll take food & collect dirties). 

My client is charged by the landlord for a number of things on the same invoice each month; base rent, turnover rent, service charge, utilities. All of these are a set % of what they call ‘relevant turnover’. This invoice numberical defines relevant turnover as sales (net of vat) less 2% ‘staff performance charge’(SPC). It is well known at the venue that this SPC came into existence because the waiting staff did not receive any tips. It is the understanding of my client and the other ‘tenants’ that this SPC is the waiters’ tip and added to their payslips as such. 

Thats all fine, but the landlord is charging VAT on the SPC. ie invoice is base rent + turnover rent + service charge + utilities + SPC = subtotal, then they add VAT to the whole amount. 

1. If the SPC is a tip, should the landlord be charging VAT?

2. Is my client overdeclaring their own output vat by using the full cash income as vat able  sales, rather than deducting the 2% tip first. Remember, that is what the landlords do to calculate the relevant turnover to do all of their charges. 

Thanks 

Replies

Please login or register to join the discussion.

20th May 2019 19:29

1. if the lease contract states that the rent is calculated in the format you suggest (base rent + turnover rent + service charge + utilities + SPC) and the landlord has opted to tax, then output tax is due on the whole amount.
2. tips generally do not form part of taxable turnover for a food outlet. Is the service charge optional?

Thanks (0)
avatar
to leshoward
20th May 2019 21:50

1. The SPC is not mentioned in the lease, it just appears on the monthly invoice as an extra charge. Everyone ‘knows’ that it’s a tip, not a recharge.

2. The customer doesn’t know that they’re paying a tip, the landlords have just decided that it is.

Thanks (0)
avatar
to atleastisoundknowledgable...
20th May 2019 22:35

How does everyone 'know' this? did they get a letter or sign an agreement? Someone must have settled on 2% rather than 3% or 1% somehow? But i tend to agree with the view that any supply made by a registered trader is vatable unless there is a specific reason not to. Even if the landlord called it a staff charge it would be vatable...

Thanks (0)
avatar
to WhichTyler
20th May 2019 23:31

I guess that our thought was that if it was getting recorded as tips / gratuities on the staff payslips, then it shouldn’t be vatable.

Thanks (0)
avatar
to atleastisoundknowledgable...
21st May 2019 12:42

It wouldn't be vatable if it came voluntarily into the hands of the staff (as its not consideration for a supply). Whatever the staffs payslip says, this looks like a supply by the landlord to the restaurant, that the restaurant has to pay, so vatable.

No it's not a disbursement either (as the restaurant has no obligation to the waitstaff)

Thanks (0)
avatar
By Mr_awol
21st May 2019 12:16

It isn't a tip. It is a notional amount that the landlord charge the tenants and (possibly) passes on to the employees.

Thanks (1)
avatar
to Mr_awol
21st May 2019 12:42

Remove a space and the letters O, T, I, O, N, A and L from your reply, and you have expressed perfectly the thought that ran through my head when I saw this question.

Thanks (0)
avatar
21st May 2019 13:54

It's just rent. It's just a calculation.

Thanks (0)
avatar
21st May 2019 14:19

Thanks all, much appreciated.

Thanks (0)
Share this content