What is the Tipping Act

The new tipping legislation is being introduced in the UK from 1st October 2024. The aim of the Employment (Allocation of Tips) Act 2023 is to ensure fair allocation of tips and that they are passed on to workers and not held by employers. It is important to note that tips are taxable earnings and cannot be used to make a person’s wages up to national minimum wage.  

It is a significant step towards improving wage transparency and supporting workers in the hospitality sector and other industries. It will enhance trust and morale among employees and be a selling point to customers. 

What does the Tipping Act say? 

• Pass on tips and service charges to workers without deductions, except in limited scenarios, such as deduction of income tax  
• Pass on tips by the end of the month following the month in which the tip was received  
• Distribute them in a fair and transparent manner where they control distribution of tips  
• Use code of practice on fairness and transparency of tip distribution when they control distribution of tips 
• Maintain written policy on how tips are dealt with and ensure it is available to all workers  
• Maintain a ‘tipping record’ of all tips paid and how they have been allocated between workers that is available to workers who request it  
• Customers should know that tips are optional and go to workers. Customers and workers should also easily be able to see how tips are handled. 
• improve job satisfaction and motivation among employees. This could lead to better service quality as employees feel more valued and fairly compensated for their efforts. Higher morale can also reduce staff turnover, a significant challenge in the hospitality industry, leading to savings in recruitment and training costs over time. 

This could lead to better service quality and reduce staff turnover, leading to savings in recruitment and training costs. 

What do employers need to do? 

Compliance with the new legislation will require some initial administrative effort. Businesses will need to set up or revise existing systems to ensure tips are distributed according to legislation and keep accurate records. Once systems are established, these processes will become routine. 

Businesses should conduct a review of current tipping practices, focusing on tip allocation and distribution for fairness and transparency, revising policies as necessary to align with the Code of Practice. Businesses will need to evaluate the impact on PAYE and NIC positions, and ensure robust tax compliance, including VAT implications on service charges. 

Need help? 

TaxAssist Accountants are here to help you comply with the tipping legislation. Call 0151 420 6933 or use our online contact form. 

Date published 2 Aug 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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