Court backs taxman in minimum wage tax row

The taxman has wonthe latest battle in the drive to prevent pubs and restaurants from calculating tips as part of minimum wage payments to staff.

An employment appeal tribunal has reversed a ruling made last year against HM Revenue & Customs (HMRC).

The latest ruling means that money paid by customers as tips or service charges and distributed to workers through a tronc - a separate bank account - must be over and above the national minimum wage.

However, one tax expert involved in the case said relatively few hospitality businesses are likely to be affected, because most have already updated their procedures.

The ruling was made in a test case bought by HMRC against Annabel's restaurant and night club in London, but will be applied across the industry.

The appeal tribunals ruled that employers should pay their staff at least the minimum wage regardless of any tips, gratuities, serrvice or cover charges, so long as the tips are not paid directly through the employer's payroll.

Denise Gaston, spokeswoman for HMRC said: "Our priority is to ensure that all workers are paid at least the national minimum wage.

"We are very pleased that the court has recognised HMRC's commitment to ensuring that tips are correctly and fairly distributed to the people who earn them.

"This is good news for bar and restaurant workers across the UK."

However, Peter Davies from accountants Vantis, who advised Annabel's, advised businesses not to panic. He said it is now normal practice for companies to receive instructions from their troncmasters and pay employees directly, rather than the more old-fashioned system of handing cash to troncmasters.

He added the company fully intends to appeal against the decision.