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PAYE and tips are issues for hospitality businesses 

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2nd Sep 2016
Tax Writer Taxwriter Ltd
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The operation of PAYE for a variable workforce who receive tips on top of their normal pay can be a headache for catering and café businesses. 

Following our catch up with Deluxe Hospitality Group as part of a new collaborative project with Receipt Bank, Rebecca Cave looks at the key tax issues hospitality businesses need to consider.

Ad hoc staff

A catering business that provides staff to serve food at one-off events needs a very flexible workforce. A large number of individuals must be hired to work for short periods, often for a single day. A key challenge is to accurately record the number of hours each person works, which varies from month to month, with long periods when a particular worker is not required at all.

Those temporary workers can’t be correctly classified as self-employed, as they are not in business on their own account and must work under the control of the employer. As such the workers must be treated as employees and are taken on to the payroll. This variable workforce could create problems for reporting under RTI, but not if the correct PAYE procedures are followed.

As many of the temporary workers are employed for repeated events they are kept on the payroll between events. If a particular worker doesn’t work in a month their pay is recorded as zero, but they are not classified as a leaver. This can lead to a payroll which contains large numbers of inactive workers, but if all the workers’ have unique payroll ID numbers that should not cause a problem for RTI reporting.

If payroll ID numbers are re-used on the same PAYE scheme this will cause HMRC to duplicate payroll records inside its RTI computer, leading to apparent underpayments of PAYE. Where an individual leaves the payroll and returns later, he should be allocated a new payroll ID number on his return. If the new period of employment is within the same tax year as the original period on the same payroll, the worker’s year to date earnings must be set to zero.   

Starters

It is essential that the employer gathers the correct information about an individual when they first present to work for the organisation. The staff used for one-off events are often students, so they may not have a P45 from a previous job. In this case the starter checklist should be completed by the new worker either online or in paper form. The paper version is more practical as the online form can’t be saved part way through.  

PAYE codes

Where individual workers have other part-time employments their PAYE codes may change frequently, creating extra administration for the employer. Larger payroll packages have the facility to download employee tax codes and notices from HMRC and automatically apply them. HMRC also provides free application: PAYE desktop viewer, which allows the employer to view search and sort large numbers of employee tax codes and notices.

Tips

When staff receive tips directly from customers, or as a share of a ‘tronc’ (a collection of the tips for the entire café), those tips are taxable. However, the tip money doesn’t count as part of the employee’s national minimum wage.

The employer is expected to apply PAYE and NIC if they control the division of the tip money from the tronc. In some restaurants a senior staff member operates the tronc rather than the employer, and in that case the “troncmaster” is supposed to apply PAYE to the tips distributed through the tronc, although not NIC. These rules are set out HMRC leaflet E24: tips, gratuities, service charges and troncs.    

AccountingWEB recently delved into the activities and issues faced by catering group Deluxe Hospitality:

Sponsors note: Receipt Bank extracts the key information from your client receipts and invoices, removing the need for time consuming manual data entry.

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