Is GST added to service charges / tips / gratuities?
If a business adds a service charge to a bill, the charge constitutes part of the value of the service provided and is subject to GST - unless the business' taxable person (normally the owner) is able to prove that all of the monies were paid to members of staff as part of their remuneration.
If a customer makes a voluntary payment over and above the amount billed for the service they receive, it is outside the scope of GST - provided that:
- the whole of the payment is retained by the employee to whom it is given – or
- the payment is pooled between the employees, who share the whole amount between them
The retail scheme gives detailed guidance on how to calculate GST on sales at a retail business and explains what retailers must include in their daily gross takings, and what adjustments may legitimately be made.
GST retail scheme
Advertised service charges
Some businesses make a compulsory service charge on top of advertised prices. This may be a flat percentage of the total bill or may be conditional on, for example, the value of the bill, the method of payment, or the size of a party.
- a café may show on its price list that a 5% service charge will be added to all bills
- a venue may add a fee for accepting payments by credit card
- a restaurant may add a 10% service charge for parties of 10 or more
These charges must be included in the value of your sales for GST.
Other charges that follow the same treatment include, and must be included in the value of your sales are:
- cloakroom charge
- cover charge
- concierge charge
The list is not exhaustive and if you are in doubt contact the GST helpdesk.