Are restaurants tips paid by debit card taxed in practice?

Brendan Burgess

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I was speaking to a café owner and was surprised when he told me that he distributes the tips paid by credit card directly to the employees without going through the payroll system.

It seems clear to me that they are taxable and tax should be deducted and PRSI paid.

But does Revenue ignore them in practice?

I could imagine that Revenue would ignore tips paid in cash. But it would be a bit harder to ignore tips with an audit trail.

At some stage, my friend will have a Revenue audit. Will they tell him to just tax them going forward? Or will they ask for a calculation? For example, you paid out €8,000 in tips - the average tax rate is 20% so that is €10,000 gross and PRSI on top of that.
 
But surely revenue won't want to delve down into till rolls or meal receipts. They just ask for totals which won't include the tip. Even if they look at bank statements to make sure your not turning over way more they would need to be a huge figure to make them think otherwise.
 
T McGibney said:
They do that every day of the week and have done so for decades.
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Fair enough. Back in the day (80/90s) when I worked in the bar trade I remember discussing with managers at the start about keeping z and x till readings and they informed me then that the tax man would laugh at you if you produced such dockets.
 
The basic rule (and I'm paraphrasing here) is that if tips money ends up in the possession of the business, any subsequent distribution of that money to staff must be accounted for in payroll and PAYE etc deducted before the applicable net sums are paid to each employee.

Otherwise, if tips are received and divided without their being accessed by the employer, the staff are free to divide the total between themselves and share it accordingly - in which case the responsibility for declaring it to Revenue falls not on the business but on each respective staff member.

The former treatment will generally apply to tips paid by card. The matter may well apply to any case where tips are paid by cash.
 
elcato said:
Fair enough. Back in the day (80/90s) when I worked in the bar trade I remember discussing with managers at the start about keeping z and x till readings and they informed me then that the tax man would laugh at you if you produced such dockets.
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Apart altogether from Revenue, till readings are the first line of defence in the detection, investigation and prosecution of till fraud.
 
To me it seems self evident that a firm can’t collect payments and distribute it to staff without treating it like takings and payroll.

To treat it otherwise would be a Pandora’s Box.
 
elcato said:
Fair enough. Back in the day (80/90s) when I worked in the bar trade I remember discussing with managers at the start about keeping z and x till readings and they informed me then that the tax man would laugh at you if you produced such dockets.
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I worked in retail in the 90s and was told by Revenue, during a visit, to keep all audit till rolls.
I eventually had box loads in the store room in various states of legibility!
Funny enough, Revenue never asked to look at them subsequently!
 
Rules tips are in black and white on various Citizens Info and Revenues's websites. Tips collected by the employer are subject to tax.

When Revenue do an audit of a restaurant they look at the inputs and outputs. They have model of what to expect. If a restaurant does meet their model they go digging.
 

So the trick is to present an iffy set of numbers and they wont go digging?!

Sorry...Couldn't resist it
 
I saw a somewhat similar case where Revenue said €8,000 tax at 20% plus psi on the €8,000. Approx €1,600 + €800 =€2,400.00

The business disputed this (the case was a little more complicated). Revenue said, appeal if you wish, but if you do, we will issue a formal assessment at a grossed up value. 20% of €10k plus prsi = €2,000 + €1,000 = €3k
 
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