Taxman to probe waiting staff tips
Food-led pubs are being warned to tighten their systems for dealing with staff tips or face paying thousands of pounds to the Inland Revenue.
A new investigation by the Inland Revenue, codenamed Project Gourmet, has been set up to investigate pubs' and restaurants' procedures for dealing with tips, service charges and gratuities given to staff.
Independent pubs and pub companies will come under scrutiny as part of Project Gourmet, which will check whether employers are dealing properly with National Insurance contributions and pay-as-you-earn (PAYE) legislation on tips received by staff.
Financial advice firm KPMG is warning licensees to make sure their procedures are in place to avoid any action being taken by tax inspectors - which could end up costing publicans thousands of pounds.
Wages normally make up 30 per cent of a pub's costs. In food-led pubs, especially those offering table service, tips can increase staff's basic wage by anything from 10 per cent to 25 per cent.
Some employers count tips as part of their staff's wages and use them to make their hourly rate up to the level of the national minimum wage.
But it is this practice that is being investigated by tax inspectors.
"The Inland Revenue is looking at the link between wages paid by the employer and staff tips," said KPMG tax investigation director Paul Lynam.
"Where tips are included in calculations to bring take-home pay up to the national minimum wage, the Inland Revenue will now treat these as wages which are liable to employer and employee National Insurance contributions.
"The Revenue usually tries to recover National Insurance contributions going back six years - which could cost the industry and employers billions of pounds."
KPMG recommends pubs introduce a system to avoid any action by tax inspectors.
"One option is to appoint an independent individual to allocate tips to employees so they don't count as earnings for National Insurance purposes," said Mr Lynam.
"But if the main employer gives out the tips. PAYE and National Insurance contributions come into force."
And it is not just Project Gourmet that could mean problems for licensees. The National Minimum Wage (Tips) Bill is currently being discussed in Parliament. If it becomes law it will mean tips cannot be counted as part of an employee's minimum wage which could lead to higher wage bills for some publicans. They could also face paying staff wage arrears.
