Taxmen target undeclared tips

Tax inspectors are targeting the catering and hotel trade in a bid to recover unpaid tax and National Insurance due on tips, says a leading firm of chartered accountants.

Restaurateurs and hoteliers who fail to set up a system to deal with tax on tips could be leaving themselves open for massive fines.

"The Inland Revenue is putting more resources into investigation and employers in the catering industry are a sitting target," said Mike Warburton, tax partner at Grant Thornton.

"Many assume that because tips are cash the Revenue turns a blind eye."

Tax is due on all tips and National Insurance contributions are due in some circumstances.

Employers are liable for payments for all staff extending over the past six years and can be forced to pay the tax and a fine of up to 100% of the tax owing plus interest.

However, where a staff member or troncmaster administers tips they may be free of National Insurance.