PhorestTips UK: Understanding Tax Responsibilities for Business Owners and Staff

PhorestTips enables clients to leave a digital tip for their service provider during checkout, which is sent directly to the individual team member who performed the service.

This guide outlines key information for UK salon owners and staff on how digital tips are handled from a tax perspective.

For Owners & Management

Transaction Flow

• PhorestTips allows tips to go directly from clients to staff members—automatically, without the business needing to handle or distribute them.
• No processing fees are charged to the business for tips made through PhorestTips.
• The full tip amount (less any applicable fee, if not covered by the client) is transferred directly to the staff member’s bank account, outside payroll.
   

Key Points

Phorest’s Tipping Solution falls outside of the Tipping Act. This means that when it’s implemented, employers are not required to operate NIC or PAYE for tips. This is based on the following factors:

Direct Transfer: Tips are given directly to the employee by the client, bypassing the employer entirely. PhorestTips ensures that the customer-to-worker transaction remains intact, with the employer only providing a facilitative role.

No Employer Distribution: Employers do not manage the tip distribution. Like cash tips given directly to the worker, distribution is controlled solely by the client through PhorestTips.

No Employer Control: Employers do not control how tips are allocated among employees, nor do they have any influence over worker-received tips.

No Central Collection: Tips are not collected centrally through the employer's payment system, payroll, or other means. Although Phorest is the same software the employer uses to receive client payments, the employer cannot directly redistribute tips.

Worker Management: Employees maintain full control over the receipt and management of their tips, including how they are stored, accessed, or withdrawn.

Personal Accounts: Tips are deposited directly into a personal account or wallet (Stripe) owned by the employee, without mediation from the employer.

Digital Trail: A digital trail shows that the tip payment is directly made to the employee without employer intervention.

💡 In short: The process is similar to how cash tips work - they go directly to staff, and it’s up to the individual to report them to HMRC.

📘 HMRC guidance for employers: Tips paid electronically.

📘 Setting up PhorestTips and How it Works

Additional Considerations - Documentation

According to the Code of Practice on Fair and Transparent Distribution of Tips and the Employment (Allocation of Tips) Act 2023, employers are required to maintain a written policy on how tips are dealt with at their place of business and ensure it is made available to all their workers.

Businesses using Phorest should consider documenting and clearly communicating their non-involvement in the distribution and control of tips.

For Staff Members

Transaction Flow

If you receive tips via PhorestTips:

• The money is first routed into your Stripe wallet, then transferred into your personal account.
• These tips are not taxed at source — no PAYE is deducted.
• HMRC treats them as taxable income, just like cash tips. But unlike regular earnings, they are, according to HMRC guidance,  subject to income tax only and not to National Insurance contributions (NIC).
   

How to Declare Tips if You Are Employed

Unless you already have a Personal Tax account, the first step is to register here. Once registered, you will be able to log in and declare the tips you earned.

• Under Pay as You Earn (PAYE), select “Check current tax year”
• Click “Add missing income from another source”
• Choose “Yes” next to “Do you have other income that is missing?”
• Choose “Tips” and fill in the amount you’ve earned in the year.
   

Personal Tax account web version:

Personal Tax account mobile app version:

How to Declare Tips if You Are Self-Employed

If you're self-employed, you're already required to submit a Self Assessment tax return to HMRC each year.

You can report any tips you receive as part of your self-employed income on your Self Assessment return, along with your other earnings.

📘  HMRC guidance for employees: Tips and Gratuities – GOV.UK (Employees)

📘  Self Assessment guide: HMRC guidance for self-employed

📌 Final Note

PhorestTips provides a seamless, compliant way for clients to reward your team. While the system simplifies tip distribution, everyone should understand their responsibilities under UK tax law.

We recommend reviewing HMRC guidance directly and consulting a tax adviser if you're unsure.