Gratuitous tax demand threatened on tips?

Waiters, waitresses and bar staff may soon have to start paying National Insurance on tips. The Inland Revenue is targeting restaurants in an attempt to reclaim thousands of pounds in National Insurance Contributions (NICs) on tip payments to staff. Tips held and distributed through what’s known as the ‘Tronc system’ – where tips are pooled centrally and distributed to employees – escape NICs provided Inland Revenue rules are followed. Accountants are warning of an upsurge in Inland Revenue investigations and their claims that restaurants are making errors in the system, meaning that NICs are due. The Revenue’s attempts have been bolstered by a ruling in the European Court of Human Rights that tips paid by cheque or credit card are the property of the employer, and can form part of the basic staff wage. Tax investigations specialists have said that restaurants using the Tronc system are “highly likely” to be on the IR’s hit list for reclaiming NICs. ”If they find errors, the Revenue can look to recover unpaid taxes going back six years,” he said. “So a business with a turnover of 10 million could be looking at an employer/employee NIC liability of 350,000 per year plus interest and penalties.”