Retail posting - Help

Dear all,

Just wondered if any of you can help with a few queries? I am doing some work for two restaurants, (just started). They have only been trading since mid April, and their former bookkeeper has recorded one month of sales all to a sales account. However, some of this total include gratuities keyed on credit cards by their customers. Should they not be seperating the tips from sales, because (a) no VAT is due on these amounts, and (b) they should be recorded as a liability to their staff, shouldn't they?

They are also using some of these amounts to balance their tills when they are short, but I see no sign of what they are doing when the till is over.

What should they be doing. I have read some of HMRC advise regarding something called 'TRONC' (which they are not operating either) and read about employers who distribute tips etc. but what I am not clear about is, can the employer use tips to balance tills? and how should tips be recorded in accounts? My thoughts are as above but I cannot get clear advise.

Any advise would be greatly appreciated.

Thanks, in advance


  • AK002
    AK002 Registered Posts: 2,492
    You are right in saying tips should be shown seperatly.

    I do bookkeeping for a restaurant and we show tips as other income.
  • *Jo
    *Jo Registered Posts: 509
    I can't answer your question i'm afraid but surely tips paid to staff wouldn't be posted as other income as it isn't income for the business but should be paid to staff. Its reasons like this that make me always pay any tips to staff in cash. That way the restaurant can't withhold it and the actual member of staff who gave me the great service gets the money paid direct to them.

    Couldn't a nominal be set up for staff tips recieved like a reverse of a staff loans account, and then distributed via payroll?
  • sdv
    sdv Registered Posts: 585
    This is a very interesting ethical and moral question.

    Ethically all the tips belongs to the waiters. It is for them to decide how the collected tips should be divided. – Tips income is taxable but not NI able

    But if he employer decides how the tips should be distributed (directly of indirectly) then the tips are taxable AND Ni able (both employee and employer’s contribution,

    See the web-link below section 3 – current tipping regulations

    c) Tips paid as part of a card or cheque payment

    Customers who pay their bill by cheque or credit/debit card may have a service charge added to this, or the customer may add a voluntary tip to the payment.
    The European Court of Human Rights has ruled that any money paid to a restaurant via a service charge or credit card is the employer’s property, but it cannot be used to make up the minimum wage. So employers may continue to retain all or part of such service charges and it may be that in future they will keep a greater proportion to cover administrative costs and credit card fees/fraud

    There are many restaurants that take the view that the tips and service charges belong to them because they have recruited the best waiters to serve their customers. If the customers appreciate the service and want to pay more for the satisfaction then that contribution belongs to the employer.

    The decision by the European Court of Human Righs have indirectly supported this view. The employers do not have to pass the tips on to their employees.

    An interesting article

    Dealing with pernickety’s query

    The bookkeeper has correctly entered all the sales income into sales account (including the tips). Assuming of course that the owners of the restaurants believe it’s their income and is not going to distribute it to their employees. (supported by – no use of “TRONC”) This extra income is vatable and therefore HMRC will want it’s share.

    Second paragraph – If all the income is entered and recorded as sales, how can they use the tips to balance the tills? – Your cash account will not balance. If the tips are treated as sales (income) the shortfall will have to be written off as an expense.- (errors by staff)

    If tips are not treated as sales (additional income) then they belong to the staff and should not have been used to balance the tills. But I believe the owners are treating the tips as additional income.
  • pernickety
    pernickety Registered Posts: 47 ? ? ?
    I have not had a chance to fully look at the z reads of the till yet, (as I have only been doing work for them for a few days last week and was concentrating on getting administration and software loaded etc.

    But, if the bookkeeper has recorded the full total for 'sales' as the z read states, what appears to have been taking place, is when the manager has cashed up and the actual money counted is short, they habe been deducting the short from the credit card tips amount (as shown on the z read) to make their till balance.What I don't know is, if this is lawful and common practice and I can't find out anywhere?

    Cash tips, are dealt with by the manager and distributed accordingly, and I know that it is up to the individual then to disclose them to HMRC (as and when).

    The company are receiving a lot of credit card tips, NOT SERVICE CHARGES, I have to add; so these amounts should belong to their staff, and be recorded as a liability to them (as net wages would be). Surely whether the till is over or short is a training issue that management should address in another way? Incidentally, the other side of the discussion i.e. an over, should be recorded as 'other income - I can understand this fine.

    I have read lots of information on 'how' the company should treat these tips, HMRC mention not VATABLE as NOTcompany income; as mentioned in my first post regarding the TRONC rules, which seems really complicated, it depends whether the company administers how they are distributed and in what way. If the company management or elected company employee decides how or who to distribute the tips to, then PAYE, is applied through the payroll, but not NICs EEs or ERs'

    I am going to have to tactfully query this when I next return, but in the meantime, any other comments or advise would be great as I am still confused, there seems to be so many anomalies in internet searches.
  • sdv
    sdv Registered Posts: 585
    It seems to me that you have several issues to consider.

    1 What is the employer’s view on tips paid to the through credit card / cheques?
    2 How is the tip collected? Is it mandatory? Or is it voluntary?
    3 Does a Tronc exist? (we know that this does not exist)
    4 Are the tips vatable? Or are they outside the scope of vat?
    5 Are the sale for the day in accounts shown as the total of “Z”?
    6 Or a higher figure (most probably) then “z” totals because any excess is likely to be the tips
    7 Where are the excess sales (tips) posted?

    Read the following web-links I have found them useful and clear though I have made assumptions on VAT implications based on the information given in the following web sites


    If tips are accounted separately to employees, any till shortage should be paid back to employees and treated as business expense. It is not unlawful to deduct any till shortage from the tips but it may not be ethical. But then in these times do ethics really matter? This is common practice in most pubs and restaurants.

    Employer will have paid the collected tips through it’s own PAYE scheme and both employer and employee will have to pay NIC on it. If not then the employer will be liable to HMRC for all three (NICx2, and Paye). This could be very costly if not accounted properly to HMRC

    Is employer going to pass that extra NI cost to employee’s, by deducting it from the tips?

    Are the tips out side the scope of vat? – ie “ Tips are genuinely freely given”

    Otherwise tips are vatable! Will the employer deduct the vat from the tips before passing it on to the employees?

    And what about the credit card’s charges on collection of tips

    May be the owners are not aware that legally they do not have to distribute any tips, to their employee, paid through credit card / cheques.

    I am sure we are all interested to hear the outcome!

    Keep us updated
  • pernickety
    pernickety Registered Posts: 47 ? ? ?
    Just to let you know how things went. There were a number of issues as above postings mention.

    The company were not including the tips in their sales figures, but of course it was being banked, as they were credit card receipts. The former book-keeper was just recording the sales and had not yet done anything about accounting for tips(although she was moving all CC funds as they appeard on the Bank stat. She was not accounting for overs/(shorts) either.

    So, what I did was create a nominal code in the liability area of their sage accounts (2214) or something similar. Then I DR a dummy account, (which had been set up to hold their sales amounts) with the total tips and CR the liability code. Similarly, with overs, I DR dummy/holding a/c, and CR both sales VAT and 2214. For shorts I do the reverse, CR dummy/holding and DR sales VAT (to reclaim VAT) and DR 2214 - this leaves an amount in CR in 2214 which hopfully, the owner will divide up accordingly at some point to his staff.

    What was needed was for me to run past others (thanks for your input) and then to quietly sit down and try various journals, to see if they made sense. I got there in the end.

    As for company ethics, well, up to them, I just wantedd to account for things correctly.

    Thanks to those that replied to my post.
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