Tips and service charges: the UK rules, and how Spain differs

The tip jar has long been the one thing in a venue that nobody writes down. It sits by the till, and what happens to it at the end of the night often depends on who is closing. That has changed in the UK, and it has not changed in the same way in Spain. If you run a venue in either country, or in both, the rules are different enough to be worth setting side by side.

The UK: the Tipping Act

The Employment (Allocation of Tips) Act 2023 and its statutory Code of Practice came into force on Tuesday 1 October 2024. The Department for Business and Trade described the effect plainly: workers keep 100% of their tips, gratuities and service charges, and an employer who breaks the law can be taken to an employment tribunal (GOV.UK announcement). It applies in England, Scotland and Wales, and employment policy is devolved to Northern Ireland.

What it asks of you, in practice:

Pass it all on. The Code says employers must pass on all tips and service charges to workers without deductions, “except in very limited scenarios, such as deduction of income tax” (statutory Code of Practice). Citizens Advice puts the consequence for card tips directly: your employer cannot take anything else from tips, for example admin charges when tips are paid by card (Citizens Advice). So the card fee on a tip is your cost, not your team’s.

Pay it on time. Tips must reach staff by the end of the month after the month the customer paid. A tip left on 23 June is due by 31 July (Act, section 27G; Code).

Share it fairly, and write the method down. Fair does not mean equal. The Code lists factors such as role, hours worked, seniority and customer intention, and asks for a clear and objective set. If tips are paid on more than an occasional basis, you need a written tipping policy that staff can read.

Keep records. A tipping record must show all qualifying tips received and the amount allocated to each worker, and it must be kept for three years. A worker can ask in writing to see their own record, once every three months.

Know what is in scope. A card tip that lands in your bank account is an employer-received tip, so you must share it. A cash tip a worker receives and keeps with no employer involvement is outside the Act, as is a tip paid by a customer straight to a worker through an app that bypasses the employer. If you collect cash tips and share them out at the end of a shift, you have likely taken control of them, and they are in scope.

UK tax on tips

HMRC’s guidance for employers says PAYE must be operated on tips an employer passes to employees, and that National Insurance is generally due as well when the employer allocates them (HMRC E24). A tronc run independently of you, by a troncmaster who decides the split, changes the National Insurance position, though you still have to tell HMRC about it. For staff, GOV.UK says tips passed on through work do not need reporting separately, because income tax is deducted when they are paid (GOV.UK, tips and tax). A compulsory service charge is not a tip, so it is treated like wages, while a voluntary one is treated like a tip.

Spain: no tipping law, but plenty of rules around it

Spanish law has no statute that says what happens to propinas. Joaquín García Murcia, professor of employment law at Complutense, writes that in Spanish law tips are not, as a general rule, part of the legal regime of salary, and that their existence and development depend on what is customary in each business or what collective bargaining sets out (BOE, Anuario de Derecho Laboral).

The Supreme Court has been equally clear about their nature. In a 2021 ruling quoted by the court’s communications office, it said that a tip is outside guaranteed salary, an extra-salary liberality, so the customer decides whether to pay it (Poder Judicial). But the same case held that if tips already exist as a working condition, an employer cannot simply ban them: doing so is a substantial modification of working conditions, which needs the formal procedure in article 41 of the Workers’ Statute. It also said tips cannot be shared out only among permanent staff and kept from temporary workers.

So in Spain the mood is different. Nothing obliges a customer to tip, nothing obliges you to hand the money over in a particular way, and in the absence of a collective agreement, the usual expectation is a fair split among those who gave the service. Check your convenio colectivo first, because some sector and provincial agreements say how tips are handled.

Spanish tax and social security on tips

For the worker, tips are income from work and belong in the income tax return. For the employer, article 76 of the income tax regulations requires withholding when you pay your staff amounts that third parties handed over as tips (Reglamento del IRPF, Real Decreto 439/2007, as quoted in this tax commentary). A binding ruling from the tax authority, as summarised by one advisory firm, says tips are not part of the VAT taxable base because they are voluntary and not payment for the service (consulta V2182-23). Whether social security contributions apply depends on whether the tip counts as salary. The general line is that they do not, because the tip comes from a third party, but that is exactly the kind of point to confirm with your gestoría given your agreement and how you handle card tips.

What this means if you run venues in both

The big difference is who has legal duties. In the UK, the employer has a statutory duty and a paper trail. In Spain the duties are softer, and the real obligations sit in tax withholding and in your collective agreement. If you want one internal rule that works in both places, write the policy down anyway: who gets what, when it is paid, and how it is recorded.

What ORDR does about this

It shows a tip option on the payment screen, so card tips are captured at the point of payment rather than pencilled in later. Sales reporting then gives you a record of what was taken, which is a useful starting point for the records the UK law asks for. How you split and pay the money is still your policy.

Sources

• GOV.UK: tipping laws come into force
• Statutory Code of Practice on fair and transparent distribution of tips
• Employment (Allocation of Tips) Act 2023
• Citizens Advice: tips and service charges
• HMRC: guidance on tips, gratuities, service charges and troncs
• GOV.UK: tips and tax
• BOE: naturaleza y régimen de las propinas
• Poder Judicial: Tribunal Supremo y las propinas
• Reglamento del IRPF (BOE)