NI is being applied to online paid gratuities and tips.

New guidance on tips and gratuities

This article covers the recently made guideline changes by HMRC for employers that have to deal with gratuities and tips and how tax and NI are applied on those earnings. The new guidance was specifically issued to define what needs to be done with tips that are paid electronically. Learn more about the full story below:

• At the beginning of last month, May 2022, HMRC issued new rules to its notice E24When National Insurance and PAYE is due on tips, gratuities and service charges.
• The latest guidance, available in section 9, deals with digitally transferred tips. It answers the query of how the tax and NI are paid, that is, either by the business through the PAYE framework or by the worker through their self-assessment or tax code.

Existing guidance.

The most well-known type of digital tipping was previously defined in the E24, and it remains the same. Where clients tip via card, Apple Pay, and so forth and add a tip to the payment method, it’s the individual who initially gets the tip that decides how it's taxed. Tip. In the event that payment goes to the business which divides it and pays to its workers (regardless if it's the full amount or not) the business should mention what they give out to each of their workers and record for PAYE tax and NI in a typical manner.‍

New guidance.

HMRC’s new guidelines basically address various types of digital tipping which are surfacing these days. These can be defined as:

1. A coffee house has the facility of home delivery. Prior to the delivery person handing over the order, the client receives a message/email inquiring as to whether they want to tip the driver.The coffee house gets the payment which later issues it to the delivery person. The tax and NI position is identical as defined in the Tip above.
2. The situation is identical to the prior instance with the exception that the payment app connects to every delivery person’s bank account. This means the client’s tip goes directly to the delivery person. Since the business isn't involved, NI or PAYE tax can’t be applied to it. Rather the worker should declare the payments to HMRC and issue tax on them.

If the business receives tips paid digitally and gives them to its workers, PAYE tax and NI is applied to such payments. However, if the tips are directly paid to the workers, then it’s up to them to declare the tips to HMRC and pay the tax; there’s still no NI.