Restaurants, pubs, cafes and hotels deal with several areas HMRC looks at closely: cash takings and till records, VAT, staff pay, and tips. Since 1 October 2024 employers must pass on all tips to workers under a written policy, and tills that hide sales are illegal, with penalties of up to £50,000 for supplying suppression tools. Tax investigation insurance pays your accountant’s fees for defending HMRC checks into your business.

What are the rules on tips?

The Employment (Allocation of Tips) Act 2023 came fully into force on 1 October 2024 in England, Wales and Scotland. Employers must allocate all tips fairly to workers, have a written tips policy available to staff, and keep records of how tips were dealt with for three years. The Employment Rights Act 2025 adds a duty to consult workers on the policy, which is not yet in force.

How are tips taxed?

HMRC’s guide E24 explains that tips are subject to PAYE. Tips paid through a tronc are free of National Insurance where the troncmaster allocates money that was not paid to the employer and the employer does not decide, directly or indirectly, how tips are shared. Where National Insurance is due, the employer is responsible for it. Getting the tronc arrangement wrong can mean National Insurance arrears across every member of staff.

What is electronic sales suppression?

Electronic sales suppression means using software or till settings to hide or reduce recorded sales. Schedule 14 to the Finance Act 2022 introduced penalties from 24 February 2022:

  • up to £50,000 for making, supplying or promoting a suppression tool;
  • up to £1,000 for possessing one, then up to £75 a day.

HMRC’s factsheet CC/FS68A, published in August 2026, says businesses use these tools “to reduce their turnover so they pay less tax”. Read our guide to electronic sales suppression.

What else might HMRC check?

  • whether all cash and card takings reached the accounts;
  • VAT on food and drink, including the difference between standard rated and zero rated supplies (see cover for VAT registered businesses);
  • staff paid outside payroll, casual workers and benefits (see cover for employers);
  • stock, wastage and staff meals compared with sales.

What does tax investigation insurance pay for?

Solar Protect cover responds to VAT compliance checks, PAYE and National Insurance checks, employment status disputes and full and aspect enquiries into Income Tax and Corporation Tax returns.

Tax investigation insurance pays your accountant’s fees if HMRC opens a check after your cover starts. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties. Read how our cover works or get a quote today.

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 7 October 2026. Sources: Employment (Allocation of Tips) Act 2023; HMRC guide E24; Finance Act 2022 Schedule 14; HMRC factsheet CC/FS68A. Cover is subject to the policy terms, conditions and exclusions. This guide is general information, not personalised tax advice.