Hi, I am looking for some help recording tips from customers. Should I create a new Income account? What do I do when I distribute the tips payment to the employees?
Thanks in advance
Tips are income of your employees, not you as the employer, so they should not go to an income account. I would use a separate liability account to collect the tips, and then distribute them.
When you pay them over to the employees, you will need to pay them through the payroll and account for PAYE and NI on the payments.
There is more detail here, depending on the system you use: Guidance on tips, gratuities, service charges and troncs - GOV.UK
Hi,
Thanks for your reply. I have created a liability account now to register the tips, however, I am not sure how to book them on the system as the customers paid them by card as an addition when they order online, so I normally raise an Invoice to register those orders but I can’t register the tips on that Invoice as they are a liability as you said. Please let me know if you have any suggestion
Regards
Hi,
I’m afraid I’m not familiar enough with QF on a day-to-day basis, so not sure of the best way to do this. I don’t know if you can split a receipt between and invoice and something else? Maybe @ian_roberts could help?
It’s a bit tricky - when you create a custom liability nominal you can tick the option to allow it to be used on sales invoices, which would then let you create a multi-line invoice with the actual income as one line (assigned to general sales) and the tip as another line (assigned to the liability nominal), then the payment would be “payment from a customer” in the normal way.
But…
If you’re VAT registered then even if you set the tips line to a 0% VAT rate, the net value of the tips will still count towards your box 6 total on your VAT return - all invoice lines are counted in box 6 regardless of what nominal they’re assigned to. If this is a problem then you’d have to go a more roundabout route of creating a “bank account” instead of a pure liability nominal to hold the tip money (call it something like “tips holding account”).
You’d then create the sales invoice just for the real income (excluding the tips), mark it as paid into the holding account, then tag the money in on your current account as a transfer from the tips account. This should leave the tips account showing overdrawn by the total amount of tip money that you are holding for the employees, and you’d clear the overdrawn balance via the journal you create when you pay the tips out as part of the payroll.
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