NIM02926 | Tips paid electronically or via third party apps

Para 5 of Part 10 Schedule 3 Social Security (Contributions) Regulations 2001

Customers are now able to pay tips in an electronic format, such as through a digital application designed for that purpose, rather than making a payment direct to either an employer or an employee by card or in cash. This does not change any of the basic principles when considering whether a National Insurance liability arises or whether the National Insurance Contributions (NICs) disregard conditions at NIM02921 or NIM02922 have been satisfied. It also does not affect how tax is to be accounted for on those tips, see NIM02965.

The digital applications are normally third-party providers, designed specifically for the purpose of facilitating the receipt and payment of tips and gratuities to employees without involvement from the employer. The arrangements that allow the use of these third-party applications should still be considered on a case-by-case basis when deciding if the payment meets the following two conditions:

• it is not paid, directly or indirectly, to the employee by the employer and does not comprise or represent monies previously paid to the employer, for example, by customers

• it is not allocated, directly or indirectly, to the employee by the employer

If these conditions are satisfied when a digital application has been used to facilitate payment, then the disregard can be applied and NICs are not due.

Examples of the use of digital platforms when paying tips and gratuities to employees can be found at part 9 of the employer’s guidance E24 (link below) – Tips, gratuities, service charges and troncs. These include both where the conditions for the NICs disregard have been met and where they have not.

E24