Income Tax (Earnings and Pensions) Act 2003 section 692

Organised arrangements for sharing tips

Section 692 deals with how PAYE applies when tips are collected and shared among employees through an organised arrangement run by someone other than the employer, and what happens if that person fails to operate PAYE correctly.

• PAYE regulations may cover organised tip-sharing arrangements run by a person ("P") who is not the principal employer, treating P as the employer and each tip distribution as a payment of PAYE income.
• If P is also an employee and retains their own share of the tips, that retained amount is likewise treated as a PAYE income payment made by P.
• Where P fails to comply with PAYE requirements, the principal employer can be treated as making the tip payments to employees, effectively stepping into P's shoes for PAYE purposes.
• The principal employer is defined as the person under whose general control and management the employees work, and tips include both gratuities and service charges.