All you need to know about tipping this festive season

Christmas is just around the corner and bars and restaurants are gearing up for the most festive and busiest time of the year. It is definitely the ‘season to be jolly’ and many of us will be flocking to Christmas parties, work functions and catching up with friends.

Whilst it may be the time for giving, we’re still unsure of the right etiquette when it comes to tipping. Are we legally obliged to do so? Does that money actually go to the staff or is it kept by the business owner?  And as an employee, what does the law say about paying tax on the tips you receive?

For consumers

Am I obliged to give tips?

There is no legal obligation to tip, so if you decide to offer a tip it is at your discretion.  Some establishments will state that there will be an obligatory tip; for example, when the number in your party goes over a certain threshold, paying the tip forms part of the contract that you are agreeing to with the restaurant.

How much is the standard for tipping in the UK?

The standard tip in the UK is around 10%, but tipping is not an absolute expectation in most establishments.

I have seen that there is an increase in the number of restaurants that have a ‘suggested tip’ amount included on the bill.  Do I have to pay this or can I change it?

There is no obligation to pay a suggested tip and no obligation to comply with the suggested tip. Feel free to deviate from the suggestion if you feel that the service does not warrant the amount suggested.

Am I allowed to refuse to pay a tip at all?

As already mentioned, because there is no legal oblation to pay a tip, you can make the decision as to whether to tip or not.

For employees

Do I legally have to report all tips I receive to HMRC?

Tax is payable on tips and would have to be reported to HMRC. However, whether you are responsible or the employer is responsible will depend on the way tips are paid to you.

If you get tips directly from a customer, you will be responsible to pay tax and if you fill in a Self-Assessment tax return, you have to include the tips on it. If you don’t fill out a tax return then HM Revenue and Customs (HMRC) will estimate your tips based on information from you or your employer.

If your employer pays the tips directly to you, they are responsible for making sure Income Tax is paid through PAYE.

Where I work we pool our tips and share them equally. I make considerably more tips that my colleagues and don’t want to participate in the scheme – can I refuse and keep my own tips?

How the tips are handled will generally be decided by the employer.  There may be an agreement in place where a person other than the employer (called tronc master), is responsible for making arrangements to share tips amongst employees.  In these circumstances, it is the tronc master who decides how the tips are shared.

Participation is not compulsory and you will have to check with the employer if there are alternatives available in relation to possible retention of tips.

As an employer

Am I allowed to insist that employees disclose their tips?

As an employer, you can request that the employees disclose the tips paid to them during their employment with you.

Can I ban employees from taking tips?

Whilst it may not be best practice or advisable, employers are within their rights to prohibit employees from accepting tips.

What’s the law on tipping in the UK?

The law around tipping is rather vague, with no specific legislation in place. However, what is clear and enshrined in law is that tips cannot be used to meet national minimum wage obligations of the employer, meaning that if they are paid, then they need to be paid in addition to the National Minimum Wage.

There have been discussions about reform in this area and the introduction of legislation, but this has not materialised yet.

The Government has a Code of Practice (National minimum wage: code of best practice on service charges, tips, gratuities and cover charges) on how employers should handle tips. However, the code is voluntary and there is no obligation on an employer to follow it, but if an employer wants to operate a ‘best practice’ business they would be advised to comply with the code of practice.

Authored by DAS