If you belong to a field where tipping is a common practice, you must question and wonder whether are tips taxable or not. In simple words, according to professionals, tips are taxable. You can be associated with the business field by being a hairdresser, waiter, bartender, or taxi driver. If you are getting tips, according to the tax laws and HMRC you will have to pay income tax on the income you are learning through the tips.

There are certain cases that will require you to do the needful for national insurance contributions as well. Are you also the one who is making a lot of money through tips for a few months and have no idea how this income can be affected by the tax implications? This guide has everything that you need to know about the tipping and tax implications in the UK. Let us delve further into the discussion to gather more information.

Reach out to our smart and clever-minded guys to get an understanding are tips taxable in the UK. We will help to understand your queries instantly.

How Do You Pay Tips in the UK?

There can be several ways through which the employees receive tips in the UK. The common ones are listed below for you:

1. Tips can be the amount that is collected by the employer and later shared among the staff with an equal ratio.
2. Some tips are given to the employees with their pay package or the amount of wage they receive.
3. Sometimes the cash form of the tips is given to the employees by the manager by the day end of a shift.
4. Sometimes the cash form of the tip is also given to the employees directly from the clients or the customers.

Moreover, the tips are received in cash form directly from the clients or from your manager, according to HMRC all the tips are taxable.

How to Realise Whether my Tips are Taxable or Not?

This does not matter whether the amount of tips is received from the manager or directly from the clients, the amount you collect from the tips is always taxable regardless of the scenario. Now comes the question that how are the tips money taxed and how much you will pay depends on the facts about the manager who shares the number of tips and how much money you are getting as an individual.

This is also important to understand that you will have to declare this earning to HMRC and in case you fail to do so, HMRC will estimate it itself. The tax amount is then directly deducted from your income through the PAYE system.

How About the Cash Tips?

When you are getting the cash tip from your customer directly, you will be liable to pay tax on this amount of money. However, you will not be liable to pay National insurance. One of the given ways can be used to pay the national income:

1. When you are planning to file the self-assessment tax returns, the money that you have earned from the tips will be included.
2. On the other hand, HMRC will estimate the number of tips from the information that is given by the employer. The tax code will be provided to your employer by HMRC. This will allow HMRC to deduct the tax from the number of your wages or salary before you receive them.

Moreover, you can use the online calculator to get a clear idea of how much tax you owe to HMRC on the amount that you are wearing from the tips.

What About the Tips Included in Card or Cheque Payments?

In the case where the waiters or other such employees are getting tips from the clients by the use of cards or cheques, your employer will ensure that the amount of tax is paid to HMRC. The PAYE system will work to handle this matter efficiently. Sometimes the tronc system is worse in which all the amount of tips are collected and given to all the staff members equally.

The tronc master is known to be the individual who is responsible for sharing the number of tips among all the staff members. The same person is also responsible to ensure that the income tax and national insurance are paid to HMRC in the right manner with the correct amount.

How are Bonuses Handled in this Regard?

The number of bonuses is considered to be similar to the number of tips. However, they are considered to be part of the payment amount as well. The national insurance and income tax will be paid on this amount on the PAYE system.

My Employer Wants to Pay my Wage Cash in Hand, is this Legal?

It is totally illegal to have cash-in-hand payments of wages. This is due to the fact that the wages you are receiving from your employer are without the deductions of national insurance and income tax. Your employment rights will be lost if you allow yourself to receive the cash payments in hand. You will have to pay more amount as tax contributions than you have ever expected.

The Bottom Line

Now that you have gathered a fair amount of information about whether are tips taxable in the UK or not, we can bring the discussion towards wrapping up. There is no doubt that the number of tips that you receive from customers directly or from online platforms is always taxable. However, sometimes the tax is paid by your employer from the number of wages before you receive them and sometimes you will have to ensure that the right amount of tax is paid.

Our team of professional members loves to hear out your business problems and find out the possible and suitable solutions quickly to the reporting in the UK. Contact us now.

Disclaimer: The information about tips taxable in the UK provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.