Why it’s important to declare your tips from clients
By Katie Barnes | 12 November 2019 | Expert Advice, Feature
Nail techs and beauty therapists reportedly have the seventh lowest paid job in the UK. However, the job roles often come with bonuses that aren’t aways considered; TIPS.
A tip is a sum of money given by customers for a service they have received. Many don’t consider tips as an earning but any sum of money that is received for the job you perform is an earning. While tips received at work don’t count towards the National Minimum or Living Wage, any additional money earned in the workplace (whether directly from the customer or from your employer) is an earning and therefore subject to tax.
Cash tips paid directly to you
If a customer directly gives you a cash tip, it is compulsory to pay tax on it but not National Insurance.
If you are self-employed or employed and are receiving tips, you must complete an annual self-assessment tax return, where tips must be declared. This is the responsibility of the tech or therapist. The employer cannot be responsible as they will not be aware of exactly what you may have accepted.
Don’t get caught out thinking that as a tip is given in cash, that you will get away with not declaring this as HMRC is cracking down. Imagine how many workers are in the hospitality business and how many tips are being received without tax potentially being paid. It is a vast amount, so something extremely worthwhile for HMRC to police. If you don’t fill out a tax return or if you are employed and do not declare your tips then HMRC will estimate your tips based on the average amount they expect you to receive in your career. This will be a likened to a hairdresser, who are renowned for receiving high tips. So if you risk not declaring this, you may end up paying more tax than the amount based on what you actually received.
Tips included in card payments
When tips are added to a card payment, they become the property of the employer, who will have to pay fees and their own tax on this income going in and out of their business, which can reasonably be deducted from the figure before it is passed on. The employer is then responsible for making sure Income Tax and National Insurance is paid through PAYE on these tips which will come off an employee’s wage automatically before they receive the payment. While you may not agree with thus, they have a legal obligation to do this.
Service charges
These are added to the bill before it’s given to the customer and tends not be usual practice in the UK, however larger companies and spas can operate like this. If the charge is compulsory, it’s not a tip so if your employer gives it to you, it’s treated in the same way as your wages.
Bonuses
If you receive a bonus – whether performance based, commission based or seasonal, bonuses are part of your pay and you’ll pay both income tax and National Insurance on them through PAYE.
I would always recommend that tips are paid directly to the service provider as it is the most beneficial option for both employees and employers. Don’t get caught out and end up paying more tax than required – declare your tips.
Love Katie B x