If you are employed in a profession that receives tips from customers, you need to report these tips to HMRC. Who is responsible for reporting them depends on how the tips are distributed, as follows:
Staff member keeps the tips for themselves
If you are an employee and receive a cash tip direct from a customer and you keep the money for yourself, this counts as earnings for tax purposes. You don’t need to pay National Insurance on these, nor will your employer pay Employers National Insurance on them either.
You will need to keep a record of what tips you have received and report these at the end of the tax year on your self-assessment tax return. If you don’t usually complete a tax return then you can telephone or write to HMRC and let them know the total amount of tips you received for the year.
Note: If you call, keep a record of when you rang, who you spoke to and what you told them.
HMRC will adjust your tax code accordingly. If you leave your employment, remember to inform HMRC that you have left.
Employer shares the tips out to all staff
If tips are collected in a box or you have to give your tips to your employer, who then distributes them to all members of staff, then your employer must add them to your salary when they do the payroll. You will pay both tax and National Insurance on these tips (your employer will also pay National Insurance on them too).
If tips are collected in this way, there is no need for you to inform HMRC that you are receiving tips.