When tips are given by customers these also need to be accounted for in the Employers payroll.  There are various rules which apply:

1. Money given directly to an employee and not passed on to the employer:
When an employee is given tips directly from a customer and is allowed to keep them you do not need to do anything for PAYE tax or NICs.  the tax is the employees’ responsibility and they should declare all tips to HM Revenu and Customs personally and HMRC will then adjust the eomplyee’s tax code to collect any tax due on what they have received.

2. Tips from Compulsory Service Charges:When an employee receives money from Compulsory Service:

Charges then the employer must calculate and deduct PAYE tax and Class 1 NICs even when the tips are handled by a tronc* (see below).

3. Tips and Voluntary Services Charges distributed directly to employees:
When an employer distributed money from tips or service charges to their employees then they must calculate and deduct PAYE tax and Class 1 National Insurance Contributions.

4. Tips and Voluntary Service Charges distributed by a third party:
You can have an arrangement whereby a third pary collects and distributes the tips.  This is known as a *tronc.  It is fairly complicated and often not employed by smaller businesses.

For more details or to discuss your business please contact us.