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Introduction

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

Example

Payment Description	Amount
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. »Ê¹ÚÌåÓýapp 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

Payment description	Amount
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.

Customers always pay voluntary or discretionary service charge

In some establishments it is rare for customers to refuse to pay all or part of a service charge. This does not affect the true nature of the payment. HMRC accepts that a payment is a voluntary service charge if it is clearly presented to the customer as an entirely optional payment. »Ê¹ÚÌåÓýapp literature seen by the customer should reflect that and be consistent with advice given to customers by staff. If a service charge is voluntary or discretionary, the payment made by the customer is a gratuity.