Anyone who takes tips at work must pay. (Image: Getty)
It’s probably seen as one of the perks of working a job where tips are paid in cash, like at a restaurant or a taxi driver.
Simply pocket the extra fiver, and you can make a lot of good tax-free money on the side. while the UK economy isn’t quite as reliant on tipping culture as the US, the extra cash can still help make up for the lower wages in many service industry roles.
But those working in jobs where they receive tips are being told they must pay tax on them or they could find themself in legal trouble.
The self-assessment tax deadline from passes at midnight tonight, January 31. If you miss the deadline, you will be forced to pay at least £100 in fines, plus the tax you owe and 7.25% interest on the outstanding tax amount.
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, in its list of those who must pay tax on self-assessment, lists tips received by workers as income which must be declared for tax purposes.
Chartered accountants PKF Francis Clark warned: “Tips and voluntary service charges are subject to income tax, just like regular wages. If given to the employee in the form of cash directly from a customer, the employee will need to report their tips as part of their taxable income when filing their annual tax return.
“If they do not submit an annual tax return, they can report the amount of tips they receive either online using their personal tax account or by calling ’s income tax helpline.”
Low Incomes Tax Reform Group adds: “If an employee gets cash tips directly from a customer without the employer being involved, the tips belong to the employee. This includes any change left on the table by a customer for the employee, any cash handed to the employee and any money left in a tip box or dish by the till to be informally shared out (in which case it belongs to the employees as a group).
“You will have to show cash tips received on your Self Assessment tax return (if you fill one in). If, as in many cases, you do not have to fill in a tax return because all your income is taxed under PAYE, you should tell about your cash tips. will usually adjust your tax code to collect the tax due. Otherwise, they may send you a bill at the end of the tax year or ask you to fill in a tax return.
“To adjust your tax code, will need to know how much you received in cash tips. This means that you have to keep a good record of what you have received. If you do not do this, may estimate your tips. This might be a rough calculation based on the sales of the restaurant and the number of employees. This could lead to an overestimation of your cash tips and you paying more tax than you need to.”
adds: “If you keep the tips you get directly from customers, you must report them to HM Revenue and Customs () yourself.
“You must report tips in one of the following ways:
- in a Self Assessment tax return if you already fill one in
- through your personal tax account online
- by calling
will change your tax code if needed. Your employer will then deduct any tax you owe on tips when you get paid. You will not need to pay National Insurance.”