‘Customers don’t realise tips can be taxed’ says Salford businesswoman campaigning for changes
Entrepreneur Renate Kalnina says tips are gifts or tokens of appreciation and should be treated as such by the authorities.
A Manchester businesswoman has launched a campaign to Scrap The Tip Tax and enable staff in sectors such as hospitality to keep money given to them by customers.
Renate says the amount of red tape and bureaucracy involved in handling tips correctly means many businesses are refusing to accept or process them, meaning staff who are often on low wages miss out.
She says tips should be seen as a gift or token of appreciation from a customer, and should not be treated as though they were an extra part of their income.
What is the current system for tips at work?
The Government’s website makes it clear that if you receive tips at work you have to pay income tax on them and might have to pay National Insurance on them too.
Customers can pay tips directly by cash or card, for example by using a mobile app, but staff can also receive them as part of their pay packet or through a system known as a tronc in which tips are pooled and then shared out between employees.
The government has set out a Code of Best Practice for tips, but businesses do not have to follow it.
Renate says the system currently is “a mess” and in need of considerable simplification.
What are the problems with the way tips are paid?
Salford-based businesswoman Renate, who runs mobile tipping company Gratuu which administers direct and pooled tips for employers, says there are a number of issues with the system as it stands.
She says the amount of work involved for businesses in administering tips correctly means some are trying to prevent tips being paid, hurting the wallets of employees who are already in some cases on quite low wages.
She also says the tronc system puts far too much responsibility on the shoulders of whichever employee has to manage it.
In some cases she says failure to run the complex tipping systems correctly could lead to workers attracting the attention of the authorities for inadvertent tax evasion.
Renate says staff should be allowed to keep their cash or card tips as a gift without tax being involved or the accompanying bureaucracy.
The petition covers both cash and electronic voluntary tips, whether they are given to an individual employee or pooled.
The 39-year-old entrepreneur said: “When we tip we do so to show gratitude for the service received.
“What most customers don’t realise is that a tip left for staff triggers a complicated chain of actions that must be followed to fulfil HMRC guidelines regarding tax on tips.
“It’s just a mess and the administrative burden is insane. That’s why now a lot of proprietors are stopping card tips altogether.
“Scrapping the Tip Tax would be an easy but effective measure that would really help the industry move towards recovery, and also protect staff, many of whom are at risk of getting into trouble with the HMRC if their employer doesn’t manage the administration of a registered tip or pooling system correctly.
“I have seen mistakes made in beauty parlours, coffee shops and by teams of big pub chains to name just a few. In most cases it’s because bosses haven’t kept up with the current HMRC guidelines and this is putting their own staff at risk of tax evasion.
“This petition argues that tips are voluntary gifts given to individuals for good service therefore, should be treated as such and given tax exempt status. If you give a payment to a member of staff, let them keep it.”
Why did Renate decide to campaign on this?
Renate, who arrived in the UK from Latvia in 2006 to study advertising and brand management at Manchester Metropolitan University, formerly worked as a waitress including spending time as a temporary agency worker.
She says she has been looking for ways to disrupt the complex tipping system and put more money into workers’ pockets for a while, which eventually led to her setting up Gratuu.
She has been running trial versions of Gratuu with sectors including hospitality and hair and beauty salons and says both have had similar problems.
She says removing employer involvement from tips will also help industries such as taxi and private hire vehicle driving.
Renate is particularly concerned at the moment about businesses being put off accepting card tips as the Covid-19 pandemic has helped to spur an increasingly cashless society.
She also says that in some cases the cost of running the administration systems can be higher than the actual amount being dished out in tips.