It is common practice for customers to add gratuities to
payments made by credit/debit cards and or cheques. As the
credit/debit card vouchers or cheques are made out in the
employer’s name those vouchers/cheques are the
employer’s property. Where an employer subsequently pays to
employees some or all of the gratuities paid by customers, the
payments made by the employer are not gratuities. They are,
however, in respect of gratuities and as such can be disregarded
from earnings if either condition 1 or 2 described in
NIM02905 is satisfied.
If gratuities are paid by cheque and or credit/debit card and
the employer then passes on some or all of the amounts paid as
gratuities direct to employees, HMRC considers that the employer
does not satisfy either of the conditions in
NIM02905.
Example
Manjit, the proprietor of a restaurant, decides that all cheque and credit/debit card tips paid by each customer should be passed on to the employee who served that customer.
The tips received by cheque and credit/debit card are initially paid to Manjit, so they represent monies previously paid to the employer and therefore the first condition for exemption ( NIM02921) cannot be satisfied. The second condition ( NIM02922) is also not satisfied. The tips are initially paid to Manjit. He then decides who should receive what amount. Therefore, he has allocated the tips to the employees. NICs are payable on these tips.
Where gratuities are paid by cash HMRC applies the same principles as for payments made by credit/debit cards or cheques.
If an employer
establish the employer’s reasons and send a submission to PAYE, SA & NIC (NIC Technical).
