The Tips Act 2023 – what business owners need to know

The Tips Act 2023 – what business owners need to know

By Published On: 7 September 2024Categories: News, Small Business Owner, Tax

On 1st October 2024 The Employment (Allocation of Tips) Act 2023 came into effect, impacting on the distribution of tips for all businesses. It is now illegal for employers to withhold tips from employees.

What does this mean for business owners?

If your business receives tips from customers, there is some action you will need to take to ensure you keep to the new regulations. The key takeaway is that all tips, gratuities or service charges must be fairly passed on to employees without any deductions.

Are tips taxable?

It is important to remember that tips are taxable/National Insurance Contributions (NICs) able earnings. If the tips are paid to employees via PAYE, this will be handled at source. If they are given outside of payroll, you should remind your employees that they may need to complete a Self-Assessment, and they should seek professional advice from their accountant or HMRC directly if they are uncertain.

When should tips be paid?

Another crucial thing to note from this publication is when you need to pay the tips to employees. You must ensure they receive the tips by the end of the month following that of which the customer pays (for example, any tips received from customers in October must be distributed by the end of November).

How should you keep a tips record?

As always, record keeping is essential and you should take new measures to ensure compliance and assurance if any issues arise. We recommend that you keep track of all tips received, who they have been distributed to, and the method of payment (cash, payroll etc.). We also suggest creating a company policy for tips, gratuities and service charges and make this available to all employees. They can request records of their tip allocations (and take to tribunal if unsatisfied), so doing this will provide transparency for the employee along with assurance that your business is operating correctly.

What if you need further information?

For further guidance on The Employment (Allocation of Tips) Act 2023, you can speak to HMRC, or speak directly with your Vantage Accounting Client Director who will be happy to answer any questions you may have.

Note: All the information and advice in this blog post was correct at the time of writing.

Share this article

Go to Top