Tips & Tax with TipBox

Let’s talk about Tips & Tax in the UK. It is important to understand the obligations when it comes to employee tips, particularly when a business implements a service like TipBox that will collect and distribute tips on behalf of staff. 

What does a Business need to consider? 

Any tips that your employees receive are taxable. 

If a business intends to collect and distribute tips themselves, it is important to keep accurate records of all tips received by employees and ensure that they are included in your payroll system for tax purposes, or if tax is not deducted prior to payment, a business should ensure that employees are aware of their tax obligations and how to report their tips to HMRC (we will cover this process further down). 

When distributing tips to employees, it is important that it is done in a fair and transparent manner. A business cannot use tips to top up employees’ wages to meet the National Minimum Wage (NMW) or National Living Wage (NLW) requirements. 

What a business needs to consider when using TipBox

The hospitality industry in the UK is constantly changing and the move towards a cashless society has had a huge impact on the collection of cash tips. It is for this reason that services like TipBox offer a simple solution to collect tips for staff instantly via card or mobile pay, and then distribute these fairly directly to staff. Making life that little bit easier for businesses. 

HMRC recognised this shift to third party services, and published guidance in May 2022, you can read it here. In this guidance HMRC outlines that a service such as TipBox removes the obligation for the business to pay National Insurance or PAYE tax on tips that are collected by a third party service.

However this does not mean that these tips are not taxed. The obligation to declare the additional earnings moves to the employee which is easily done on the government self assessment portal (we will tell you more about this further down).

As a business owner, when you implement TipBox in your hospitality business, you can be sure that tips collected are being distributed in a fair and transparent manner, directly to your staff, and that the tax liability does not sit with the business to handle. 

What does an employee receiving tips need to do?

If you work in a business that has implemented TipBox, the steps to declare your additional earnings are very simple and we will cover this in the step by step below. 

Firstly, working in hospitality, you will either be self-employed or employed by a business. 

If you are self-employed then you are required to complete a self assessment each year to declare your earnings, reporting the tips you have earnt is simply added to this self assessment form. With TipBox you can request a record of every tip payment you have received from our service to make life that little bit easier when it comes to reporting your earnings. 

If you are employed by a business, then there is a simple step that you have to complete. 

When you receive your pay from your employer tax on your earnings is already deducted, however the tips you earn via TipBox are not included in this, therefore these have to be declared separately. It’s a quick and easy process that we have outlined for you below;

Step 1 – Create a Government Gateway account, most people will already have a government gateway account, however if not it is a very quick and easy account to open. You can create your government gateway account here

Step 2 – Register with HMRC to access your personal tax account, you can do that here. Within your tax account you simply need to navigate to the PAYE section. 

Step 3 – Select ‘Add Missing Income’ and choose the current tax year, then you will be given a drop down menu, select tips and enter the amount. 

It’s as simple as that. If you have any questions there is a tax helpline you can call on 0300 200 3300