Taxman may collect on tips
Publicans of food-led pubs are being warned to tighten up the way they distribute tips or face investigation by the Inland Revenue and a hefty tax bill.
The Inland Revenue has finally released its long-awaited guidance on how to distribute tips - but according to expert Steve Wright, the new rules are an attack on how pubs operate and are basically an attempt to get publicans and their staff to pay more tax.
"The major issue facing the industry this year is the attack by the Inland Revenue on the way service charges and tips are distributed to employees through tronc schemes," said Mr Wright, director of accounting group Vantis Hospitality. "The long-awaited guidance has arrived in the form of an Inland Revenue publication and it does not make happy reading for the industry."
Speaking at a masterclass organised by Vantis, Mr Wright added: "In fact, the guidance seems little more than a follow up to the tax-gathering initiative known as Operation Gourmet which targeted the industry in 2003."
The new guidance, known as E24, lays out the stringent rules for sharing out tips through tronc schemes which are distributed by an employee, paid directly by the customers or distributed by the employer.
In each case the employer could be liable for operating PAYE tax, national insurance contributions and complying with minimum wage regulations - depending on the circumstances.
Because of how complicated the rules are, experts are concerned publicans could distribute their staff's tips wrongly and end up with an Inland Revenue investigation and, in some cases, a hefty tax bill.
But Peter Davies, from the Inland Revenue's London compliance projects unit, said there was a need for publicans to understand they have to make and receive the right payments.
He said: "We're aware that there have been areas of uncertainty in some parts of the hospitality sector, which is why we've responded to the industry's needs by producing an easy to use, one-stop leaflet that combines guidance on tips, tax, national insurance and the national minimum wage. We hope this goes a long way to helping employers meet their obligations."
- For more information about distributing tips contact the Inland Revenue on 0845 7 143 143 or see Pub Food over the next week for everything you need to know.
What is a tronc scheme?
A tronc scheme is a separate payroll that is set up to distribute voluntary tips from customers to staff.
It is run by a troncmaster who is normally a member of staff who is nominated by the employer or elected by the staff. Employers cannot influence how the tips are distributed.
