This blog has been inspired by a question from the audience at the women in business Seminar hosted by Re New Beauty Ltd the distributer of Biosculpture Gel Polish and MUD Makeup. As promised on my #60secondswithria video here is the full version with useful links for anybody that is interested in the rules around TIPS given to the beauty therapist or salon owner.
In a nutshell this income must be declared and is subject to income tax as per the guidance from HMRC you pay tax on the following:
- money you earn from employment
- profits you make if you’re self-employed – including from services you sell through websites or apps
- some state benefits
- most pensions, including state pensions, company and personal pensions and retirement annuities
- rental income (unless you’re a live-in landlord and get less than the rent a room limit)
- benefits you get from your job
- income from a trust
- interest on savings over your savings allowance
You do not pay tax on things like:
- the first £1,000 of income from self-employment – this is your ‘trading allowance’
- the first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
- income from tax-exempt accounts, like Individual Savings Accounts (ISAs) and National Savings Certificates
- dividends from company shares under your dividends allowance
- some state benefits
- premium bond or National Lottery wins
- rent you get from a lodger in your house that’s below the rent a room limit
So how do you pay tax if you are a beauty therapist and the customer gives you a tip? So this is an amount that is more than the cost of the treatment and can be anything from a few quid upwards. The treatment of this income depends on how the tip is received and who decides on how the tip is distributed.
If you are a therapist receiving the cash tip then it is your responsibility to keep a track of all the tips that you receive during the tax year and report this via self assessment if you complete a tax return or via PAYE if you pay tax via your employer. This can be done by contacting HMRC to let them know the amount of money received in tips and this is applied to your tax code to collect the tax throughout the year.
If you are a salon owner and employer and you collect the tips and decide on how these are distributed then it is your responsibility to ensure that the tax is collected via payroll as PAYE and NIC will become due on this income.
As an employer you do have the option to set up a tronc which can be controlled by another individual, know as the ‘tronc master’. The tronc master would need to set up a PAYE scheme for the Tronc and PAYE needs to be paid on the tips that are distributed, there is no NIC to pay if you use this method. HMRC has useful guidance on this here.
For more information feel free to get in touch via email [email protected] to speak to myself Ria-Jaine, accountant for beauty.
For more information on the above for employers you can find this here.
Friendly disclaimer: The information contained in this article is for guidance and information purposes only. It should not be relied upon as full and complete accounting, tax or legal advice. For specific advice relevant to your own situation please speak to Ria-Jaine MAAT or another professional direct. “
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Ria-Jaine Lincoln is an award winning accountant ranking in the top 50 women in accounting worldwide.
With a special interest in beauty and income taxation Ria-Jaine is your go to for all your accountancy needs.