Gratuities: Income Tax
The question
To ask the Chancellor of the Exchequer, what assessment her Department has made of the potential merits of excluding payments of service tips and gratuities via a tronc from income tax.
Answered by Dan Tomlinson
Employees pay tax on all payments that reward them for the work they do. This includes wages, tips, gratuities, or any share of a service charge that they receive. Where the employer collects the tips and pays them to employees, the employer is required to deduct income tax and National Insurance contributions (NICs) from these earnings.
Where customers pay tips directly to staff, each employee is responsible for declaring these earnings to HM Revenue & Customs’ (HMRC) who will adjust the employee’s tax code to collect the tax due. These payments are not subject to NICs.
Further information on the tax treatment of gratuities, can be found at: www.gov.uk/tips-at-work/tips-and-tax.
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