The Association of Licenced Multiple Retailers (ALMR) has written to Sajid Javid, the Secretary of State for Business, Innovation and Skills, on the issue of tips, gratuities and service charges.

The letter from ALMR chief executive Kate Nicholls highlights to the minister that there are good reasons why tips are collected in and redistributed – and that this has got lost in the media debate. It also says that there needs to be more transparency and clarity for staff and customers about where the money is going and why.

Dear Secretary of State

Tips, gratuities and service charges

As the representative trade body for eating and drinking out businesses, including many casual dining restaurants, we have been closely monitoring recent press articles about the treatment of tips and noted your comments on the issue.

We very much share your view that tips should be passed on to the staff who have earned them, and this has formed the central part of our advice to members on this issue. However, we are concerned that there has been much misleading, emotive and incorrect comment in the media which does not reflect current industry practice and I wanted to take this opportunity to clarify this.

Firstly, there appears to be significant misunderstanding and concern about why companies are collecting in tips and service charges at all. This is only being done on the explicit advice of HMRC to ensure that the tax liability on this portion of earned income is met in full and that ‘grey’ economic activity is eliminated.

Previously, when staff were allowed to keep cash tips, HMRC found that income was not being declared. The requirement to collect and redistribute tips therefore protects the employee from potential action to recover unpaid tax and saves the Government time and money. If the preference now is for tips not to be collected by the companies in this way, then there will be a need for a change in the HMRC guidance and a recognition that tips form part of the employees’ earnings.

Secondly, with the increased prevalence of credit card tipping, the collection of tips by the company allows a fair and equitable redistribution to both front and back of house teams. We acknowledge and share your concerns, however, about the transparency of this process and the appropriateness of some of the practices identified in media reports; there is much that can be improved. That is why we have called an urgent summit to review and revise the existing BIS endorsed Code of Practice in this area and to change it from minimum standards to genuine best practice. We have arranged a meeting of companies for early next month and are already engaging with the relevant trades unions.

We would very much welcome the opportunity to speak with you and your officials to ensure that your concerns are addressed as part of this.

Yours sincerely

Kate Nicholls, chief executive