New reforms making it unlawful for employers to withhold tips from staff

New legislation to make it unlawful for employers to withhold tips from staff means that customers will be certain that all tips go to hard-working employees. The Tipping Bill will benefit more than 2 million workers and, for the first time, will give them the right to see an employer’s tipping record.

Despite most hospitality workers (many of whom earn the National Minimum Wage) relying on tips to top up their pay, there are still businesses that fail to pass on service charges from customers to their staff.

The Employment (Allocation of Tips) Bill will ensure that all tips go to staff by making it unlawful for businesses to hold back service charges from their employees.

See Cash boost for millions of workers as government backs new law to ensure all staff keep their tips - GOV.UK (www.gov.uk)

Tips and Gratuities should go to staff not the employer

The Government is to make it illegal for companies not to pass on tips to their employees. This comes after some major restaurant chains were accused of keeping 10% of tips given to staff.

The Department for Business Energy and Industrial Strategy (BEIS) have announced that new legislation, to be introduced within a year, would help about two million people in the hospitality industry. An updated consultation response was published on 24 September:

See: Tipping, gratuities, cover and service charges consultation: government response (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1020132/tipping-consultation-government-response.pdf)

The current rules for taxing tips, gratuities and service charges are complex and, whilst all tips are taxable, national insurance does not currently apply where the payment is given directly to the staff member.

For current HMRC guidance on the taxation of tips, gratuities and service charges: See: Tips at work: Tips and tax - GOV.UK (https://www.gov.uk/tips-at-work/tips-and-tax)

March 2019 Tax Tips & News

Welcome... To March's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice in your own specific circumstances. We're here to help! March 2019 · HMRC reaffirm income tax charge on winding up · Checking directors' expenses · Voluntary disclosures · Employer responsibilities for tips · March questions and answers · March key tax dates

HMRC reaffirm income tax charge on winding up

HMRC have published Spotlight 47, which provides guidance on tax avoidance schemes that try to avoid the income tax charge on distributions when a company is being wound up. In recent years, HMRC have endeavoured to prevent schemes being used by shareholders to take advantage of more favourable capital gains tax rates when extracting value from their company. Until 6 April 2016, under arrangements known as 'phoenixism', an individual shareholder who intended to carry on the company's activities could arrange matters enabling them to wind up the company and receive the company's undistributed profits. The profits would be classed as capital distribution (subject to capital gains tax rates), rather than a dividend or other income distribution (subject to higher income tax rates). The individual would then carry on the same or similar activity, often using a newly-formed company. To counter this perceived avoidance, in 2015 HMRC introduced Targeted Anti-avoidance Rule(TAAR) legislation to prevent individuals from gaining a tax advantage by winding up companies, to make sure any distribution in the winding up is taxed as income, rather than being subject to capital gains tax. Some scheme promoters have recently claimed that they can get around the TAAR legislation by making an artificial modification of the arrangements (for example by selling the company to a third party rather than winding it up). However, HMRC are adamant that such schemes do not work because: - in many cases, the actual outcome is that the individual is receiving distributions in a winding up - as the individual carries on trading using a different vehicle these schemes are within the scope and purpose of the TAAR legislation; and - phoenixism arrangements that claim to involve payments to shareholders taxed as capital instead of income are caught by the TAAR, or other provisions. HMRC have said that they will investigate any attempts to avoid the income tax charge. If it is claimed that the phoenixism TAAR does not cover the arrangements, HMRC will consider whether the General Anti-abuse Rule (GAAR) applies to these schemes. Penalties HMRC have reaffirmed that a severe penalty regime exists in relation to such schemes - transactions after 14 September 2016 where the GAAR applies will be subject to a 60% user penalty. Moreover, for transactions entered into on or after 16 November 2017, any person who enabled the use of these sorts of schemes may be subject to a penalty as an enabler of an abusive scheme. The penalty amount will be equal to the amount of consideration they received for enabling the arrangements. The user may also be subject to penalties for filing an inaccurate return, with penalties of up to 100% of the undeclared tax. For further information, see HMRC Spotlight 47 here.

May 2018 Tax Tips & News

Welcome... To May's Tax Tips & News, our newsletter designed to bring you tax tips and news to keep you one step ahead of the taxman. If you need further assistance just let us know or you can send us a question for our Question and Answer Section. We are committed to ensuring none of our clients pay a penny more in tax than is necessary and they receive useful tax and business advice and support throughout the year. Please contact us for advice in your own specific circumstances. We're here to help! May 2018 · Use gift Aid to save tax · Diesel car supplement increase takes effect · HMRC update guidance on MSCs · When are tips taxable? · May questions and answers · May key tax dates