Bar entrepreneur facing hefty tax bill over staff tips
Bar entrepreneur Jonathan Downey has been hit by a hefty tax bill after a misunderstanding over his staff's tips.
Mr Downey's Match bar group, which includes top London style bars Milk and Honey and Match, has been landed with a bill from the Inland Revenue for failing to deduct the PAYE tax from tips paid by credit card, before passing the money on to his employees.
Now Mr Downey (pictured) is warning other publicans to be aware they may be facing a crippling tax bill.
"I'm sure there are lots of gastropubs and other pubs or bars that are going to get caught out like this," he warned. "People really need to know about this issue. We're being punished because the Inland Revenue's rules were not clear."
The problem, according to Mr Downey, is that the rules regarding PAYE tax and national insurance contributions on tips are different.
If a voluntary tip, as opposed to a compulsory service charge, is added by the customer to his or her credit card bill, national insurance does not have to be paid before the tips are given to the staff.
But in the same situation, PAYE must be deducted before the tips are passed on.
"We were acting in our staff's best interests," Mr Downey said. "But we misinterpreted the law."
Earlier this year the Inland Revenue issued guidance about how tips should be distributed but before the guidance was released there had been lots of confusion among publicans and restaurateurs.
Now they are paying the price.
Mr Downey's bill runs into tens of thousands of pounds and will cause huge problems for the company's cash flow.
"It's going to create a massive hole in our cash flow, even though the Inland Revenue is being reasonable about how much we have to pay and when," Mr Downey said.
"The amount of money involved is so huge it could actually buy me another bar.
"I feel taxation and regulation is the name of the game in this business at the moment. Everywhere we move there's a new tax for small businesses and it's tough."
Related articles:
Taxman may collect on tips (10 March 2004)
