TaxCorporate TaxTips cause tax trouble for restaurants

Tips cause tax trouble for restaurants

Restaurants are facing crippling tax bills because the Inland Revenue has delivered a 'double-whammy' clampdown on the way restaurateurs treat tips when paying staff.

Link: Taxing tips – The waiting game

Leisure industry experts have accused the Revenue of trying to ‘reinvent the law’ to clamp down on the tips fund, known as the ‘tronc’.

They claim the Revenue will ultimately be challenged in the courts over the tax demands.

Bob Cotton, chief executive of the British Hospitality Association, said he had received advice from a QC, who was of the opinion that the Revenue would not be able to support the guidance. ‘The next step is to distribute the QC’s opinion to all of our members, and no doubt someone will challenge it legally,’ he said.

Michael Powner, a partner in the employment unit at City law firm Charles Russell, commented: ‘The problem is that the guidance is effectively trying to cross a bridge between the national minimum wage act and NI legislation.’

Because the Revenue has taken this approach some restaurateurs have already been handed huge tax demands of up to six figures.

‘If the Revenue is correct then restaurants will have to pay back sums over the last six years. Lots of restaurants will go out of business as a result,’ said Philip Fisher, employee benefits partner at Chantrey Vellacott.

John Whiting, tax partner at Big Four firm PricewaterhouseCoopers, said there had ‘definitely been a targeting of the restaurant business’ and that many will face ‘crippling bills’. He added: ‘The feeling is that the guidance that has come out of government is not exactly the model of clarity.’

Since its introduction, restaurateurs have been known to use the tips to raise staff salary levels above the national minimum wage. But the Revenue has now provided far more examples of where NI will be charged on the tips, should they be used for this purpose, leading to a huge increase in NI bills.

  • email David_Rae@vnu.co.uk

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