Tax Q & A’s – Debbie’s monthly editorial for Grapevine readers

Every month Debbie Story answers your questions in the local Grapevine magazine.

Q: I’m a local restaurant owner and I’m concerned that around Christmas my staff receive large tips from customers, without paying tax.  Is this correct?  

A: Tips are treated as taxable income. How they are taxed varies depending on how the tips are given to staff.  If customers give cash tips directly to employees or leave them on the table and individual employees keep them without any involvement from the employer it is the responsibility of the individual employee to advise HM Revenue & Customs (HMRC) of the amounts of money received. The tax will usually be recovered by an adjustment to the employee’s Pay As You Earn (PAYE) tax code.

If you get involved and hand out the tips, then you would need to include these tips as income on their pay slips and they will be taxed under PAYE.

There is a third alternative where a member of staff is responsible for arrangements to share tips amongst employees. However a PAYE scheme will be set up for the tips in their name and they may be held responsible for any failure to deduct tax from payments.  Unsurprisingly I have no clients with a member of staff willing to take on this role!

Q: I use my own car for business but I only receive 40p per mile from my employer.  Shouldn’t I now get 45p?  Can I get reimbursed for the difference?

A:  The 45p you refer to is the approved mileage allowance payment rate (AMAP) for business mileage up to 10,000 miles and it reduces to 25p per mile thereafter.  If you are paid less than the AMAP rate you can get tax relief against your earnings for the difference. For example, if you are a higher rate tax payer you should get 40
per cent  of the 5p back,  On 2,000 miles this would be 2000 x (45p-40p) x 40% = £40.

To make a claim you will need to keep a record of your business miles and the mileage allowance payments made to you by your employer. If your expenses don’t exceed £2500 you can complete a P87 – form online.  If your expenses exceed £2,500 then you will need to fill in a self-assessment tax return.

Q: What is RTI and how will it affect me as an employer running my own payroll?

A:  HMRC is introducing a new way of reporting PAYE, called Real Time Information, or RTI.  From April 2013 employers will be legally required to report PAYE in real time.  This means that information about all PAYE payments needs to be submitted to HMRC online each time a payment is made as part of the payroll process, rather than at the end of the year as they are now.

The main changes are that you will no longer need to submit to HMRC an end of year return, form P35, starter and leaver forms P46 and P45 (but they are still issued to employees) as the information will be submitted on a monthly basis.  Your employee’s details will also need to be kept up to date on your payroll system.