Restaurants not to blame for following government advice on tips

Commenting on the Prime Minister's announcement that restaurant staff are to receive all their tips, Paul Newman, head of leisure and hospitality at RSM said:

'We welcome the announcement by the Prime Minister that the Government intends to introduce legislation to ban restaurants from making deductions from employees' tips. 

'However, to add some balance to the debate, it is worth pointing out that restaurants were only following the Government code of best practice and that in most cases the deductions were made to offset their own costs. 

'The costs a restaurant has to bear include not only credit card charges but most significantly the costs of running a separate payroll. These payroll costs arise because HMRC insists PAYE tax and NIC is deducted on the sums a restaurant pays to its staff. Where NIC is payable HMRC will charge the restaurant 13.8 per cent of the amount paid.

'Many restaurants are able to avoid the 13.8 per cent charge by paying the tips and service charges through a tronc scheme - a common fund into which tips and service charges are paid for distribution to the staff.  In such cases, NIC may not be due, but restauranteurs still incur the credit card charges and continue to be obliged to operate a separate payroll system to deduct PAYE tax.  

'In the spirit of fairness to restaurant owners and to avoid further unfair and ill-informed comments, we can only hope that when amending the rules the Government takes the opportunity to reduce restaurants' costs by including a payroll exemption for all tips and to consider issuing a new code of best practice.'