HMRC to Investigate Restaurant Trade

HM Revenue & Customs have created a new task force to crack down on payers who HMRC believe have not made a full disclosure on their tax return. Their latest brief is to take a look at the restaurant trade. Initially their efforts will be targeted in the London area followed by the restaurant trade in Scotland and the North West of England.

One area of interest will undoubtedly be the recording and accounting of tips. For instance:

  • Are tips collected by employees and are they aware of their responsibilities to declare these as earnings?
  • Are tips managed by the employer and PAYE and NIC deducted?
  • Are tips managed by setting up a tronc? Has a troncmaster been appointed?
  • Is the tronc registered for PAYE?

National Insurance is another complex area in relation to tips. Generally speaking employers are responsible for paying and deducting National Insurance contributions where customers:

  • Pay a mandatory service charge and these charges are passed on to employees directly or via a tronc arrangement, or
  • Pay a voluntary service charge or tip to the employer, and the employer passes these charges/tips to a tronc, and the employer has a say in how the tips are distributed amongst employees.

Class 1 NICs are not due where:

  • Customers pay tips direct to employees.
  • Customers pay voluntary tips or service charges to employers and: the employer passes some or all charges to a tronc, and the employer is not involved in deciding how much each tronc member receives from the tronc.

As a final point, tips are not part of the “supply” for VAT purposes so do not make the mistake of accounting for output tax on them unless you are making use of the flat rate scheme.

If you have any doubts about the way in which your restaurant accounts for tips, or indeed any other aspect of your record keeping please call. HMRC may be heading in your direction.