Consultation response: ‘Tips, gratuities, cover and service charges’

The government has published its response to the 2016 consultation ‘Tips, gratuities, cover and service charges’ which set out proposals to make tipping fairer.

There are currently no specific legal rules governing the proportion of voluntary or discretionary payments for service which must go to workers. A draft bill was introduced in 2019 but this never progressed through parliament.

The 2016 Consultation followed a 2015 Call for evidence. Its objectives were that all payments should be:

• Discretionary, and clear to customers that they are voluntary.
• Received by workers.
• Clear and transparent to consumers and staff in terms of how they are treated.

No proposals were made to alter the Income Tax or the NIC treatment of Tips, gratuities and troncs.

The majority of the feedback from the consultation came from customers rather than workers and employers and showed strong support for:

• Transparency for consumers on discretionary payments.
• Workers to receive their fair share of discretionary payments with employers prevented from making deductions from discretionary payments, other than as required by tax law.
  • This was much less well supported by employer respondents. They were asked to provide evidence of the cost of handling such payments for tax purposes to support the case for deductions but over 90% failed to do so.
• A statutory code of practice to replace the 2009 voluntary code which respondents felt was not fair or transparent and is not widely used or understood.

The government now plans to bring forward legislative measures to ensure tips, gratuities and service charges go to workers as part of a new Employment Bill. The measures will include:

• Requirements for employers to not make any deductions from tips received by their staff, including admin charges, other than those required by tax law.
• Requirements for employers to distribute tips in a way that is fair and transparent, with a written policy on tips, and a record of how tips have been dealt with.
• Provisions to allow workers to request information about an employer’s tipping record.
• Requirements for employers to have regard to a statutory Code of Practice on Tipping.
• All of the above to be enabled through Employment Tribunal where employers fail to comply.

No timetable has been set for the changes, with the Employment Bill to be brought forward ‘when parliamentary time allows’.

Useful guides on this topic

Tips, gratuities and troncs
How are tips, gratuities and troncs taxed? What are the rules for National Insurance (NICs)?

Pubs & Bars: What expenses can I claim?
This guide outlines what expenses unincorporated pub and bar owners can claim for tax purposes. 

External links

Government Response ‘Tipping, gratuities cover and service charges consultation’ 

Guidance: National minimum wage: code of best practice on service charges, tips, gratuities and cover charges