Voluntary service charges, tips and gratuities
If a business adds an optional 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 if one of the following apply:
- the whole of the payment is retained by the employee to whom it is given
- the payment is pooled between the employees, who share the whole amount between them
Compulsory 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 the value of the bill, the method of payment, or the size of a party.
These charges must be included in the value of your sales for GST.
Examples of compulsory service charges include:
- a service charge added to all bills shown on the price list
- a fee for accepting payments by credit card
- a service charge for large parties
- cloakroom charge
- cover charge
- concierge charge
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