Tax News

Bar staff and restaurant workers have been given a hand from an unlikely source. The taxman has been fighting their corner in a long drawn court battle, culminating in a Court of Appeal ruling in the Revenue's favour. As we reported last summer Annabel's night club and others lost their initial Employment Appeal Tribunal case. HM Revenue and Customs (HRMC) was successful in arguing that tips and gratuities should not be counted towards the minimum wage. Annabel's appealed against the judgement, but lost. The Court of Appeal ruled that employers must pay staff the minimum wage, not counting any tips or gratuities. This means that the restaurants must now pay over £125,000 in arrears to their workers. Tips are counted as taxable income and should be declared under the rules of self assessment. Traditionally tips were paid in cash, and it was often difficult to collect the tax due. It was usually done by adjusting the individual's tax code. With most payments now made by card, the money goes to a central 'pool', which is then distributed by the employer. This method is known as a "tronc". Restaurants were abrogating their responsibility by including tips as part of their minimum wage requirement. HMRC argued that as such tips were not paid by the employer they should be treated as separate payments. The minimum wage is £5.73 per hour if you are 22 or over. Now, as long as tips are paid directly to a bank account, separately from wages, they will not be taken into account when working out the minimum wage. The tips will still be taxable of course. This is a test case, which means the ruling will apply to the whole hospitality industry. Many of the poorest earners in the country will benefit from it. HMRC has a confidential Helpline for anyone who thinks they are not being paid national minimum wage rates should contact the confidential - 0845 6000 678. By Julian Shaw, TWD Accountants. May 8, 2009.