HMRC has issued new guidance to employers about the tax and NI payable on tips. It explains the position where customers tip electronically. What’s the full story?
Updated E24
In early May 2022 HMRC added new guidance to its notice E24When National Insurance and PAYE is due on tips, gratuities and service charges (see The next step ). The new guidance, which is at section 9, is about electronically paid tips. It addresses the question of how the tax (and NI, where applicable) is collected, that is either by the employer through the PAYE system or by the employee through their self-assessment or tax code.
Existing guidance
The most common form of electronic tipping was already explained in the E24 and there’s no change. Where customers pay by card, Apple pay, etc. and add a tip to the method of payment it’s who first receives the payment that determines how it’s taxed. Tip. If tips go to the restaurant etc. which distributes them to its employees (whether or not they pass on the whole amount), the employer must add what they pay to each employee to their normal pay and account for PAYE tax and NI in the usual way.
New guidance
HMRC’s new guidance is mainly in the form of examples about other forms of tipping electronically which are becoming more common. These can be summarised as follows:
- A restaurant offers deliveries. After the driver has delivered a meal, software automatically sends a text/email to the customer asking if they want to pay a tip to the delivery person.
- Payments are received by the restaurant which then pays the driver. The tax and NI position is the same as explained in the Tip above.
The position is similar to that in the previous example except that the software links to each driver’s bank account (or the server’s bank account if the meal is taken in a restaurant). When the customer pays a tip it goes direct to the driver/server. The employer is not involved and therefore the payment is not subject to PAYE tax or NI. Instead the employee must declare the tips to HMRC and pay tax on them.
If the employer receives tips paid electronically and passes them to its employees, it must apply PAYE tax and NI to the payments. Otherwise it’s up to the employee to declare the tips to HMRC and pay the tax, although there’s no NI.
The next step
HMRC’s guidance: E24 – NI and PAYE is due on tips
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