There are several work lines in which people tend to give a lot of money in form of tips. If you are an individual who is associated with a work line that has a common tendency to tipping, you must wonder ‘are tips taxable’. In simple words, we can say that yes the amount of money you make from your work line tipping is taxable. As per the instruction given by HMRC, you might be a waiter, working as a bartender, a hairdresser, or a taxi driver, and the amount of tipping that you earn at work comes under taxable money. This means you have to pay the income tax on this kind of money.
There are a few cases that bring you under the obligation of paying national insurance contributions as well. However, these days there are a few apps that work in a beneficial way for you that will help you to collect cashless tips. In case you are able to collect a lot of money from your work line and you have got no idea whether it is taxed or how is it going to be taxed, we have got you covered here. This guide will help you to understand everything that you need to know about the tipping amount and how tax work for it.
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Are tips taxable – How Do I Get an Idea?
This does not matter how you have earned the amount of money as tips at work, it is taxable regardless of the quantity unless it is earned from your work line. Now comes the question about how much you owe as a tax on your tipping amount and how will you pay it. This has to do a lot with the tips belonging to whom and who will take a decision about the sharing of tips.
Another imperative factor to keep in mind here is that you will have to declare the tipping amount earned from the workplace and get in touch with HMRC about this. In the case you fail to declare, HMRC will get lots own estimation and the tax you owe will be deducted from your income through PAYE.
What are Cash Tips?
In a scenario where you receive any amount from a customer at work in form of a tip, you will have to declare this income to HMRC and pay income tax on this. However, you are under no obligation to pay a national insurance contribution for this. The way you will choose to pay the income tax can be any one out of these listed ways:
- The first way is to do it through self-assessment tax returns. If you decide to go this way, you have to include the amount of money you have earned in form of tips from customers.
- If you do not declare your tips amount to HMRC, they will make an estimate of your tips by the details shared by your employer. Your employer will get your tax code after this. This will allow HMRC to deduct the tax from your monthly salary even before it reaches you.
Moreover, you can use online calculators to make an estimate of the amount you owe to HMRC according to your salary and tipping amount. You can easily pay the tax with self-assessment tax returns then.
What are Service Charges?
The service charges are the charges that a customer pays for the services given to them by the employees of a business. These kinds of charges are usually added to the bill before the customer makes a payment. In the case of voluntary service charges, you will be liable to pay national insurance contributions and income tax for this amount of money. This works in the same manner as it does for any other kind of tipping amount of money.
On the other hand, the compulsory tip is not considered part of the tipping amount. Sometimes the employers distribute the share of tips to the employees, and the treatment with this amount will work the same as it is with the amount of the wages you receive.
Cheque and Card Payments – Are the Tips Included?
In the case a customer is giving you the tipping money through the medium of a card or a cheque, this makes your employer liable for ensuring that the tax you owe on this amount is paid through PAYE before you receive the payment. However, sometimes the tipping amount that is pooled in for the staff members is distributed as an equal share among them. This is considered as tronc.
Your employer who will take the responsibility of getting the tipping amount shared equally among staff members will be known as the tronc master. Now the tronc master will also be liable to ensure that the accurate amount of money is going to HMRC from you in form of income tax and national insurance contribution.
The Bottom Line
Now that you have gathered a fair amount of information about ‘are tips taxable’, we can bring the discussion towards wrapping up. We can say that the tips are usually taxable, however, there is a difference in making the tax payments if the amount is received through the card or cheque. If you are working as a part of the service staff, this will help you to be well aware of the tipping money. We hope these few minutes of reading will help you to develop a better understanding.
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Disclaimer: The information provided in this blog about ‘are tips taxable’, including the text and graphics, in general. It does not intend to disregard any of the professional advice.