At my little accounting firm, A4Accountants.com, we had a query about tips and tax on tips. If you run a business in the UK, here’s what you need to know:
If you’re VAT registered and you run a business where your customers tip you (eg. a restaurant), and you automatically add that tip to the bill (so it’s a compulsory payment) then you need to add VAT to the tip.
If the tip is at the discretion of the customer, then you don’t need to add VAT to it.
Either way, you do need to account for it. HMRC want tax on your tips as they see it as just another part of the PAYE system.
And now for the best bit. If tips are pooled together in any establishment, this is known as a TRONC.
And when you have a TRONC, you must by law assign someone to look after it.
That person is called the TRONCMASTER.
The above is part of our “Awesome Stuff from HMRC You Couldn’t Make Up” series.
Quentin Pain A4Accountants.com