It is certainly frustrating to customers as they are never sure whether so-called discretionary service charges are given to staff or just used to swell the restaurant's coffers. More importantly, the treatment of tips for tax purposes has still not been simplified.
There are a number of tax implications around this area. In strictness, if tips are received in cash directly from customers they should be returned by the employee receiving them as H M Revenue and Customs argue that these form part of someone's remuneration. This is good news for the employer as they do not need to get involved.
If, however, the employer is involved in any way in the distribution of tips, even if they simply provide cash in lieu of service charges paid by credit card, they are held to be responsible for the deduction of tax and National Insurance Contributions.
At Dataplan Payroll we are a specialist payroll company. Life is too short to try to decipher the legislation and regulations surrounding the Pay as You Earn system so see what we can do for you as a payroll solution.