Tips law for UK restaurants

Tips used to be a matter of house custom. The Employment (Allocation of Tips) Act 2023 ended that. It received Royal Assent on 2 May 2023, came into force on 1 October 2024, and comes with a statutory code of practice that employers must have regard to.

This guide is a plain summary for owners. It isn't legal or tax advice, and the GOV.UK code and HMRC guidance listed under Sources are what count. The code applies in England, Scotland and Wales; if you trade in Northern Ireland, check the rules there.

What counts as a tip under the Act

The law covers tips, gratuities and service charges paid by customers, in any form, where the employer receives them or controls or influences how they're shared. The code says the way a customer pays doesn't decide the question; what matters is whether the employer is involved.

In practice:

Plan on it being a qualifying tip.

Who has to share in tips

The Act protects workers, which includes employees and agency workers. It doesn't apply to people who are genuinely self-employed. So a self-employed courier you book by the job is outside it, while a delivery driver on your payroll is inside it.

The government's non-statutory guidance adds two points that matter in restaurants:

• Agency staff can't be treated less favourably just because they come through an agency.
• More than one site: tips are shared among workers at the site where they were left. Don't pool them across branches.

Only workers who directly provide the service to customers have to be included. Kitchen staff can be included; many policies split between front and back of house.

Fair shares: what the code expects

The Act says allocation must be fair. It doesn't fix a formula. The code lists factors you can weigh:

• the role each worker plays, front or back of house;
• basic pay;
• hours worked;
• individual or team performance;
• seniority and length of service;
• what the customer intended, where that's clear.

Whatever you choose, it mustn't discriminate. The code warns about indirect discrimination, which can happen without anyone meaning it, when a group that gets fewer tips includes a disproportionate number of people with a particular protected characteristic. The code also says that if the workers affected consider a method fair, that may help a tribunal find it fair. Consult your workers before you settle on a method, and review it when things change, such as new roles or new opening hours.

Paying tips on time

Tips must reach workers by the end of the month following the month the customer paid them. The code's example: a tip left on 23 June must be paid out by 31 July.

There are two common routes:

1. Through payroll. The tip appears on the payslip. This keeps a record automatically.
2. Through a tronc. A tronc is a separate arrangement run by a troncmaster who decides the split. The code says using an independent tronc operator, chosen fairly, gives you a reasonable basis for showing allocation was fair. HMRC must be told about a tronc, and if you, or a director, act as troncmaster, the tips go through payroll in the normal way.

The code allows deductions only in very limited cases, such as income tax, so don't take card costs or "admin" out of tips.

Your written tipping policy

You need a written policy if your business receives tips more than occasionally. The code says it should cover:

• how tips are accepted (card, cash, online, service charge);
• how they're allocated between workers, and why;
• how and when they're paid out;
• how workers can ask for records.

Write it in plain words, make sure every worker can read it, and offer it in another format if someone needs one. You can show it to customers too, but you don't have to. The government guidance includes a template.

Coming change: the Employment Rights Act 2025 will make consulting workers on the written policy, and on any changes to it, a legal requirement. A revised code published in June 2026 was withdrawn on 29 July 2026 for a fresh consultation. Until a new code is in force, the government says to keep following the existing code. That makes it sensible to consult now anyway.

Records and worker requests

Keep a record of tips received and how they were paid out for three years from the date of payment. A worker can make a written request to see your tipping record, limited to one request in any three-month period, covering up to three years back. Data protection law still applies, so share only what's needed and keep personal details of other workers private where you can.

Service charges, tax and VAT

Tax is the part owners get wrong most often. The Act didn't change tax treatment; HMRC's guidance sets it out.

Two more points. Tips can't count towards the National Minimum Wage, so pay the minimum wage from your own money and tips on top. And if you show a service charge on an online menu, label it clearly as optional or not, and see online menu prices and fees for how to show charges to customers. VAT on the food itself is covered in VAT on takeaway food.

If something goes wrong

A worker who thinks tips weren't shared fairly can raise it with you first, then contact Acas for early conciliation, then go to an employment tribunal. According to the government guidance, claims about unfair allocation or late payment have a 12-month time limit, and claims about a missing policy or records have a 6-month limit following an update on 1 October 2026. A tribunal can order you to pay the money owed and award compensation of up to £5,000 per worker for financial loss.

A tips checklist for this week

• List every way customers can tip, including online orders and QR codes.
• Decide whether each one is a qualifying tip.
• Choose payroll or an independent tronc, and tell HMRC about a tronc.
• Write the policy, consult staff, and give everyone a copy.
• Set a monthly payout date that beats the end-of-following-month deadline.
• Keep records for three years.
• Check your service charge wording on menus and receipts.
• Put a review date in the diary.

Tips are staff money, so they don't help your margins. What does help is keeping more of each order's value. See restaurant profit margins for where the money goes; third-party apps take on average up to 25% commission per order.

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Frequently asked questions

Do card tips have to go to staff in the UK?

Yes. Under the Employment (Allocation of Tips) Act 2023, in force since 1 October 2024, an employer must pass on all qualifying tips, gratuities and service charges to workers in full, with only tax deductions allowed. The code of practice says tips paid by card, online or by QR code are likely to be ones the employer receives, so they are covered.

When must tips be paid out?

The statutory code says tips must reach workers by the end of the month after the month the customer paid them. A tip left on 23 June should be paid by 31 July. Paying through payroll or a tronc fits that timetable.

Do I need a written tipping policy?

Yes, if you receive tips, gratuities or service charges more than occasionally. The code says the policy should explain how tips are accepted, allocated and distributed, be written in plain language, and be available to every worker. Sharing it with customers is optional.

Can a restaurant keep part of the service charge?

Not if it is a qualifying tip or a discretionary service charge. The law requires the full amount to go to workers. The code allows deductions only in very limited cases, such as income tax, so card costs or admin charges shouldn't come out of tips.

Is a service charge subject to VAT?

HMRC says a service charge customers must pay is standard-rated for VAT. A genuinely optional service charge, or a tip the customer chooses to add, is outside the scope of VAT. Income tax applies to tips either way, and National Insurance depends on how they are paid out.

How long must I keep tipping records?

The code says for three years from the date the tip was paid. Each worker can ask in writing to see the tipping record, once in any three-month period, covering up to three years.

Sources