Example 17: tips paid to employees by a third party app
Mr Y runs several takeaway chicken stores and also offers a delivery service, employing a dozen or so drivers. Mr Y has allowed his drivers to use a third party downloadable app which customers can use to pay tips directly to the individual employee instead of giving a cash tip on delivery.
The customer is able to download the app to their mobile phone and configure it to their bank account, which allows payment to be made directly to an individual driver. The driver is able to transfer any tips they receive through the app to their personal bank account and is then free to do as they wish with that money. The money does not pass to Mr Y at any point and Mr Y does not have any say in how the drivers are required to use the tips once they are received.
Tips paid direct to employees in this way have all the characteristics of cash tips paid directly to employees with no employer involvement and should therefore be treated in the same way. No National Insurance contributions are due and PAYE will not apply. It will be the responsibility of the employees to advise HMRC of the amounts of money received and tax will usually be recovered by an adjustment to the employee's PAYE code.
Example 18: employer offers tips to be paid by third party app
Mr X owns a restaurant and employs a dozen or so chefs and waiting staff. Mr X has placed a link to a downloadable, third party app on his restaurant tables which customers can use to pay tips directly to an employee or to all employees working at the time of their visit, instead of leaving a cash tip on the table or adding a tip to a card payment.
The customer is able to download the app to their mobile phone and configure it to their bank account or debit or credit card, which allows payment to be made directly to an individual or individuals' account.
The employee is able to transfer any tips they receive through the app to their personal bank account and is then free to do as they wish with that money. The money does not pass to Mr X at any point and Mr X does not have any say in how the staff are required to use the tips once they are received.
Tips paid direct to employees are paid directly to employees with no employer involvement and should therefore be treated as such. No National Insurance contributions are due and PAYE will not apply. It will be the responsibility of the employees to advise HMRC of the amounts of money received and tax will usually be recovered by an adjustment to the employee's PAYE code.
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