s


s b b How


things have changed over the years!


AS WE celebrate our 75th anniversary, we can’t help but be nostalgic.


None of us can remember what we were doing in 1936, but some of our longer-serving members of staff can go back as far as 1971. Take Graham Burton, for example...


He joined the fi rm in 1971 as an accounts clerk, and as you can see he sported the stylish haircut of the day! Take a look at him now, 40 years later. He is now accounts manager and prefers not to dwell on his 1970s look! Note the old-style calculator, one step up from the abacus which is hidden under Graham’s desk!


Tax treatment of tips and gratuities


THERE are many businesses whose employees receive tips or gratuities from customers of the business. Examples of such businesses will include pubs, restaurants and hotels. For these businesses it is important that any such receipts are dealt with correctly so far as the rules relating to PAYE and National Insurance Contributions (NICs) are concerned. This article summarises the more important regulations. There are a number of criteria which will determine how any receipts by employees must be dealt with. These are as follows:  Was the receipt from a customer made voluntarily?


 Was the receipt from the customer levied in the form of a compulsory service charge, eg a service charge


automatically included on a restaurant bill. (This will apply whether the charge is included in the total without being shown separately or shown separately on the bill and added to the total.)


 Was the tip or gratuity received by the employee directly from the customer?


 Was the tip or gratuity distributed to the employee by his or her employer?


The basic rules are as follows: As far as receipts levied by means of


a discretionary or compulsory service charge, and paid to the employer are concerned, if a business adds a compulsory service charge to a customer’s bill or leaves it to the customer to add a service charge and then distributes this service charge to one or more employees,


EMPLOYMENT LAW CHANGES


IT HAS been reported that there are likely to be changes made to the redundancy laws in the not-too-distant future, and in particular the creation of a new “employers’ charter” which will allow businesses to dismiss employees during the fi rst two years of their employment without running the risk of the employee bringing an action for unfair dismissal. At present a business can only dismiss an employee in the fi rst year of employment to avoid an action being brought.


In addition, it is proposed that


in order to reduce the number of vexatious unfair dismissal claims being brought, employees will have to pay a fee when lodging an employment claim. (It is assumed that, should the employee be successful in his or her


4 Business Matters b


claim, the fee will be reclaimable, either from the authorities or the business.) The Government is also set to review employment law in relation to smaller businesses, as the present legislation is considered to be too stringent. One particular area which is lined up for reform concerns statutory sick pay (SSP) with the length of time that a business must at present pay SSP likely to be reduced.


MFW advice


The above news will come as some relief to smaller employers although individual employees may, understandably, be concerned at the proposals. Once any new legislation is introduced, we will be able to advise clients accordingly.


then the business must deduct both PAYE and NICs from the charge. The employer must do this whether the employer distributes the money directly to the employee or whether the distribution is made through what is known as a “tronc” which is a system for distributing tips and gratuities and which is operated by a ‘troncmaster’.


Tips etc received directly by the employee Often a tip is made directly to the employee by the customer. This is common in restaurants where the bill does not include a compulsory service charge and any such payment is left to the discretion of the customer. In many instances, the customer will pay the bill and then give a separate cash payment to the employee as a tip.


In these cases the employer does not need to deduct PAYE or NICs and it is the responsibility of the employee to declare these receipts to the tax authorities. However, if a tip is received directly


from a customer by an employee but the employee then gives this to the employer, then it is the responsibility of the employer to account for PAYE and NICs when these tips are ultimately distributed to one or more employees.


Tips and gratuities distributed by a tronc


First of all we need to defi ne a “tronc”. A tronc is an arrangement whereby tips, gratuities and services charges are pooled and then distributed to employees by a person known as a “troncmaster”.


If a business decides to operate a tronc it must inform HM Revenue & Customs (HMRC) as to who the troncmaster is. This will enable HMRC to set up a PAYE scheme for the tronc.


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