Agency workers that receive tips or gratuity as part of their job or service industry, could have their employment records checked from time to time by HMRC. A review of their employer’s records would be carried out by HMRC to make sure things are in order for PAYE, National Insurance contributions and separately for National Minimum Wage, the HMRC has reported.
If there is both an employer PAYE scheme and a tronc PAYE scheme then it is likely that records for both schemes will be reviewed at the same time.
Agency workers that receive tips can be commonplace in the catering and service industries. As the pandemic has accelerated the acceptance of electronic payments over cash, HMRC has updated its guidance for employers to include examples of systems for the electronic payment of tips.
“The guidance reflects that a payment made electronically does not change any of the basic principles for deciding how tax is to be accounted for on those tips and whether a national insurance contributions (NIC) liability arises,” said the ICAEW.
Where the employer collects the tips and pays them to employees, the employer is required to deduct income tax and NIC from these payments.
Where customers pay tips directly to staff, each employee is responsible for declaring these earnings to HMRC. Any tax due is likely to be collected through an adjustment to the employee’s tax code. Direct payments from customers are not subject to NIC.
ICAEW
There are also separate rules for payments made through ‘troncs’ (a special pay arrangement used to distribute tips, gratuities, and service charges where a person other than the employer is responsible for sharing the amounts). These are also detailed in the updated guidance by HMRC.
To learn more about how tax on tips is reported if you are an agency worker, small business owner or agency, the following links should provide more clarity: