Deliveroo Tipping - does the rider pay Income Tax/NICs on the tip?

trombonebiker

I'm a new rider for Deliveroo and have been trying to work out if I should be keeping track of my tips separately from the delivery fees. As a Deliveroo rider, I am self-employed. The HMRC/Government website hasn't been much help as it's all aimed at employees in places like restaurants, and doesn't even mention if/how being self-employed affects taxes on tips.

When a customer is paying for their order, they can decide to tip the rider. This money (tip and delivery fee) then goes into Deliveroo's account, from where it is then paid into my account at a later date, along with the delivery fees. I assume that Deliveroo takes a cut of the delivery fees, but all tips are paid to the rider in full - Deliveroo takes no cut of tips. 

The HMRC guide E24(2015) titled "Tips, Gratuities, Service Charges and Troncs" seems to me to suggest that I should be paying Income Tax on Tips, but not NICs. Section 7 (page 5) says;
"Legislation provides that any amount paid to an employee which is a payment ‘of a gratuity’ or is ‘in respect of a gratuity’, is exempt from NICs if it meets either of the following 2 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
By ‘allocated’ we mean deciding who should receive what amount by way of tips"

In my case, I think condition 1 is not met, as it is paid indirectly to me by the employer (Deliveroo are "employing" me on a self-employed basis). I think condition 2 is met, as the amount is set by the customer, i.e. it is allocated by someone other than the employer.

So - should I expect to be paying Income Tax & NICs on the tips I'm given, or Income Tax only? I want to know so that I can budget accordingly.

Jeremy535897

Well done for studying this, but it's irrelevant. What matters is your first statement: "as a Deliveroo rider, I am self employed." Whilst the court process may not yet be complete, the current position (High Court decision December 2018) is that Deliveroo riders are self employed. What you have quoted is only relevant to employees. Tips received in the course of your self employment are trading income like the delivery fees you receive.

As a self employed person, you will pay income tax under self assessment, and you will pay Class 2 and Class 4 NIC. Class 2 is £3.05 a week for 2020/21 (but paid with self assessment tax, not weekly), if your profits exceed £6,475 in 2020/21 (you may be best voluntarily paying it to build state pension entitlement if your profits are lower), and Class 4 is 9% of profits over £9,500 in 2020/21. The short answer is that tips are part of your profits, and if your profits are over £9,500 in 2020/21, you will pay class 4 NIC at 9%.

MalMonroe

Hopefully you will have registered with HMRC for tax purposes - there IS information about tax and tips in this link - https://www.gov.uk/tips-at-work/tips-and-tax

More info here https://goselfemployed.co/how-to-register-for-hmrc-taxes-for-deliveroo-riders/

And also here https://www.gov.uk/log-in-register-hmrc-online-services

oldbikebloke

MalMonroe said:

Hopefully you will have registered with HMRC for tax purposes - there IS information about tax and tips in this link - https://www.gov.uk/tips-at-work/tips-and-tax

as explained by Jeremy, OP is self employed so the tips link you list is irrelevant as that is for employees.

the "tips" he gets are no different to the delivery fee, they go into the single pot for total gross income from his self employment and that figures is obviously the start point for working out his taxable profit on his accounts 

He is then subject to income tax and NI on that profit as explained by Jeremy

Ray_Coman

Technically, if he is given a cash tip it is taxable.  However it would be interesting to research how strictly individual drivers apply this rule in practice.

Jeremy535897

Ray_Coman said:

Technically, if he is given a cash tip it is taxable.  However it would be interesting to research how strictly individual drivers apply this rule in practice.

A lot of the tips are added to the delivery charge and paid direct to Deliveroo, who then pass it on to the driver. But cash tips are no different from a tax point of view.

trombonebiker

Jeremy535897 said:

Well done for studying this, but it's irrelevant. What matters is your first statement: "as a Deliveroo rider, I am self employed." Whilst the court process may not yet be complete, the current position (High Court decision December 2018) is that Deliveroo riders are self employed. What you have quoted is only relevant to employees. Tips received in the course of your self employment are trading income like the delivery fees you receive.

As a self employed person, you will pay income tax under self assessment, and you will pay Class 2 and Class 4 NIC. Class 2 is £3.05 a week for 2020/21 (but paid with self assessment tax, not weekly), if your profits exceed £6,475 in 2020/21 (you may be best voluntarily paying it to build state pension entitlement if your profits are lower), and Class 4 is 9% of profits over £9,500 in 2020/21. The short answer is that tips are part of your profits, and if your profits are over £9,500 in 2020/21, you will pay class 4 NIC at 9%.

Thanks for this, it's exactly what I was after. I've been self employed for several years in an industry where tipping is a non-consideration, and as I said, I couldn't find any information specific to my circumstances. Safe to say Deliveroo's rider support website hasn't exactly been a font of knowledge on the subject, either.