Revenue has, for a number of
years, operated a concession (see
Appendix 1) whereby service charges in hotels
and restaurants were not regarded as part of the
taxable amount if they were distributed in full to
staff. This concession operates widely throughout
the hotel and restaurant sector, and was presented
as a way of ensuring that staff in this sector could
receive gratuities intended for them, but included
on the bill presented to a customer, without these
gratuities being subject to VAT. It was conditional
on the hotels or restaurants not converting any part
of the charges for their own benefit.
The European Court of Justice has
found that any amount which a supplier (restaurant,
hotel, etc.) is entitled to receive forms part of
the taxable amount [1].
Therefore, service and other charges that are
included on the bill presented to the customer are
liable to VAT.
WITHDRAWAL OF CONCESSION
Revenue is withdrawing the concession with effect
from 1st September 2008. From that date hotels and
restaurants must account for VAT on all amounts
included on bills to customers. Hotels and
restaurants may continue to operate within the terms
of the concession until 31st August 2008.
Voluntary payments (tips) made by
customers and not included in the bill presented to
the customer will continue to be outside the scope
of VAT.
RATE OF VAT
From 1st September 2008 all
service charges included in hotel and restaurant
bills will
"Where a hotel, etc. bill or price list
indicates, or bears a clear statement that it
includes, a specified percentage addition to cover
service charges, such service charges may,
concessionally, be ignored for VAT purposes, subject
to what follows:
a.
the whole of these
service charges must be distributed to the
staff;
b.
if it is a hoteliers
practice, in accordance with an agreement
with his staff, to withhold some part of the
service charge receipts during one period
and to distribute the amount withheld during
another period the amount withheld may be
ignored provided that it is, in fact, fully
distributed within the agreed period and is
in addition to whatever salaries/wages may
be due to the staff by virtue of the
agreement. Service charges which are used to
finance, wholly or partly, contractual
salaries/wages due to employees are liable
to VAT;
c.
where, apart from the
circumstances described at (b) above, a
hotelier, etc. distributes less than the
full amount of the service charge, the full
amount is taxable. No adjustment may be made
for the amount actually distributed. In this
connection amounts withheld to cover
breakages, etc. may be regarded as having
been distributed; and
d.
where, apart from the
circumstances described at (b) above, a
hotelier, etc. distributes more than the
amount of the service charge indicated on or
included in the bill or price list the
excess will not be relieved from VAT
liability."
