Chapter NIM02915

Published date11 April 2016
Record NumberNIM02915
Introduction

It is common practice within the restaurant industry for businesses to add a service charge to a customer’s bill.

Example
Customer’s bill for meal £100
Service charge @ 10% £ 10
Total amount payable £110
Compulsory service charges

Where a service charge is compulsory, the customer is obliged to pay. The amounts paid by customers for compulsory service charges are not gratuities or offerings and cannot be disregarded from earnings when calculating Class 1 NICs. It is unnecessary to consider whether either condition 1 or 2 of the gratuity disregard (NIM02905) is satisfied.

Donor or customer voluntarily pays more than the compulsory service charge

Where a donor or customer voluntarily pays more than the compulsory service charge, the amounts paid over and above the service charge are gratuities.

Example
Customer’s bill for meal £100
Service charge @ 10% £ 10
Total amount payable £110
Customer pays another £5 for the service provided

In this example, if either condition 1 or 2 of the gratuity disregard (NIM02905) is satisfied, the extra £5 paid by the customers for gratuities can be disregarded from earnings when calculating Class 1 NICs liability.

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Voluntary or discretionary service charges

It is common practice in restaurants for voluntary or discretionary service charges to be added to customers’ bills. If a customer is not obliged to pay the service charge, the amount paid for the service charge is a gratuity.

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