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1947 saw Tips taxable for services rendered. In that year the case of Calvert v Wainright saw a cab driver liable for such tips. Below is a brief description from Hansard regarding tips.
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E4.470 Tips
The cases and other authorities cited in this article relate to liability under the legislation that had effect before 2003–04, in other words, the Schedule E legislation rather than the rewritten legislation in ITEPA 2003 (see E4.101A, 101B). Accordingly, since the principles described here were established, not only have the statutory provisions changed, but so has the terminology used; see E4.401. However, the overall effect of existing rules is not changed by ITEPA 2003; see E4.101A. Indeed, to ensure that existing case law will apply to anything that counts as an emolument but is not listed in the definition of “earnings” introduced by ITEPA 2003, there is a single reference to the term “emolument” in that definition; see E4.401.
Employees in certain trades (restaurant and hotel employees, taxi-drivers and railway porters are the outstanding examples) receive tips which form a substantial part of their income. No case was reported before 1947, in which a decision was given in regard to the liability to tax in respect of tips. Lord Atkin, however, referred to the matter in Hunter v Dewhurst in these words—
“Rule 1 [of Schedule E2] appears to me to indicate emoluments either received from the employer or from some third party (such as tips, permitted commission and the like) as a reward for services rendered in the course of the employment.”
In Calvert v Wainwright3, a taxi-driver was assessed in respect of tips, the figure being estimated. His employers in evidence before the General Commissioners stated that the taxpayer was employed at a definite wage, and that tips were no part of the bargain. The court held that the taxpayer was assessable in respect of the tips, and the words of Lord Cave in Seymour v Reed4, which are quoted in E4.461, were considered to cover the case. Atkinson, J, pointed out, however, that a sum given as a present in appreciation of the recipient's personal qualities, such as faithfulness, and consistency and readiness to oblige, would not be taxable.
In Wright v Boyce, the appellant, a huntsman, received, in accordance with a widespread and long-standing custom, gifts of cash at Christmas time. The gifts were entirely voluntary, and were made by followers of the hunt and others interested in it. At the time of the appellant's appointment, which was made orally, nothing was said about Christmas gifts. It was held that the gifts (other than those received from persons not connected with the hunt) were taxable as they came to the appellant by virtue of his employment as huntsman and were not presents.
The Revenue clearly believe that tips and similar payments are chargeable to tax in addition to normal wages. It is only where a gift is made on personal grounds (and not from the employment) that it is not taxable as employment income. Therefore tips and gratuities received by taxi drivers, postmen, hairdressers, waiters, etc, in respect of services they have provided are taxable as earnings.
For the PAYE treatment of arrangements under which tips are pooled and shared out among a group of employees, see E4.939.
* 1 (1932) 16 TC 605, 637, 645, HL. See also Rowlatt J in Beynon v Thorpe (1928) 14 TC 1, 13.
* 2 Emoluments of an office or employment were subsequently chargeable under Schedule E Case I, II or III (TA 1988 s 19(1) before repeal by ITEPA 2003 Sch 8 (which applies, broadly, from 2003–04; see E4.101B)); for the equivalent provisions under ITEPA 2003, see E4.104.
* 3 [1947] KB 526; [1947] 1 All ER 282, 27 TC 475.
* 4 [1927] AC 554, 559; 11 TC 625, 645, 646, HL.
* 5 [1958] 1 All ER 864; 38 TC 160; affirmed, [1958] 2 All ER 703; 38 TC 167, CA.
* 6 Revenue Employment Income Manual EIM 1460, 7900.
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