10 September 2024
The start of October is creeping around and with it brings a new requirement for businesses: ensuring 100% of tips are paid to employees.
The Department for Business and Trade (DBT) has published the code of practice on fair and transparent distribution of tips, and while not much will change for payroll processes, it is worth a look to ensure your company is compliant.
With that said, below are some helpful things to remember about tips and the tax treatment of processing them in different scenarios from our amazing advisory team:
- Firstly, if an employer has any National Minimum Wage earners it is important to know that any tips received at work DO NOT count towards National Minimum Wage, but tax is due upon them.
- If the tips are distributed by the business owner or someone who has an influence on how the business is run, then the payment is subject to both tax and National Insurance.
- If, however, the employees elect a Troncmaster, this could be a head waiter or chef, (someone who is not involved in the day to day running of the business, a Manager or Owner for example), the Troncmaster would decide who would get the tips and how much each they would be paid out of tips. Where a business has a Troncmaster and have formally agreed this with HMRC, the tips are then subject to tax only, through the payroll.
Below is a flow chart explaining how the tips must be treated with and without a Troncmaster in place:
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