When HM Revenue & Customs’ (HMRC’s) current guidance on the tax treatment of tips and troncs was first published back in 2014, tips and troncs were paid almost exclusively in cash or through card transactions.
Of course, in the eight years since, things have changed dramatically and payments are frequently made via app-based platforms, whether for delivery drivers or waiting staff.
Now, HMRC has updated its guidance to take account of these changes and clarify the tax position that applies to different arrangements.
Importantly, the new guidance does not change the tax status of payments made through app-based platforms. Instead, it offers further clarification of the position and its application in various circumstances.
The two key takeaways are:
- Tips and troncs passed from an app to an employer without an independent troncmaster are subject to National Insurance and PAYE, even if they are intended by the customer to be passed to a specific member of staff.
- Tips paid directly by third-party apps to employees are not subject to National Insurance and PAYE. The onus is on employees to notify HMRC of this income.
App-based tipping arrangements can be set up in many different ways, with seemingly small variations in how they’re operated having sometimes significant impacts on the tax positions of employers and employees alike.
It is crucial not to make assumptions about the tax status of any app-based set-up you are using as errors can lead to HMRC inquiries and potentially hefty penalties.