Jennifer Adams considers whether the Employment (Allocation of Tips) Act 2023 will have any tax consequences.
On 1 October 2024, the Employment (Allocation of Tips) Act 2023 came into force, aiming to ensure a fairer distribution of the payments customers leave as gratuities to staff. The tax treatment of tips and service charges depends on how staff are paid – does the new legislation change the tax position?
PAYE for income tax purposes includes wages, salaries, commissions, bonuses and certain benefits-in-kind. It also covers gratuities, service charges and troncs rewarded to staff for services rendered.
Methods of payment
There are three main methods by which gratuities, etc., are distributed:
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Payments added to the bill are paid directly to the employer and therefore become the legal property of that.
