Tips, gratuities, cover and service charges

BIS are seeking views on proposals to ensure the treatment of tips, gratuities, cover and service charges is fair and transparent.

Tips are an important source of income for many low-paid workers, particularly in the hospitality sector. We therefore welcome the launch of this consultation document on tackling questionable employer practices around tips and making the tipping process fairer and more transparent.

The focus of our response relates mainly to the question of whether to incentivise and increase the prevalence of well managed tronc systems – a way of pooling and distributing tips without any employer control.

We believe this could certainly help improve many workers’ positions, not least because if operated correctly, tips will not attract a Class 1 National Insurance Contributions (NIC) liability – offering a saving to the worker.  

However, it should be noted, that setting up and running a tronc correctly, following HM Revenue & Customs (HMRC) requirements, is a labyrinthine issue – something that is not addressed in the consultation document.  

We think that a tronc should be something that staff members can set up and run themselves without undue administrative burden. In order to achieve this, BIS and HMRC need to work together to ease the process for troncmasters – this may be by simplifying the rules and/or by providing much clearer guidance.

Provided the current barriers can be dealt with, we think that more should be done to encourage cash tips to be put into the tronc system so that PAYE tax can be operated. The current rules on cash tips mean that it is the workers’ responsibility to declare them to HMRC. In reality we think this means that they go largely un-taxed. Whether intentional or not, non-declaration can leave workers in difficult situations.

Finally, we take the opportunity to call for a broader review of the unfair and unclear tax and NIC rules surrounding tips, which can leave workers confused and disenfranchised with the system and would urge BIS to work with HMRC towards this longer term aim.

LITRG’s comments can be found

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Meredith McCammond