Since 1 October 2024, every qualifying tip and service charge your customers pay has belonged to your staff — not your business. The Employment (Allocation of Tips) Act 2023, the law most people call the Fair Tips Act, makes it mandatory for all tips to be passed on to workers without deductions (gov.uk, 2024). Two years on, the mistakes haven't stopped — they've just got more creative. The most common one now is quietly renaming a service charge as an "admin fee", a "brand fee" or an "ambience fee" so the money looks like business revenue instead of a tip.
If you run an independent restaurant, café or takeaway, this is a compliance risk you can't see on a spreadsheet until it turns into a tribunal claim — and a successful one can cost you up to £5,000 per worker (Acas, 2024). This guide walks through the six tip and service-charge mistakes that catch UK operators out, what the law actually requires, and the fix for each. None of them takes money off your bottom line that was ever really yours.
Key takeaways
- Qualifying tips and service charges belong to staff, in full, with no deductions. That has been the law since 1 October 2024 (gov.uk, 2024).
- Renaming a service charge as an "admin" or "brand" fee to keep it is the headline trap. A union organiser has called the practice "almost certainly a breach of the Fair Tips Act, at least in spirit if not the letter of the law" (London Centric, 2025).
- You must have a written tipping policy and keep tip records for three years where tips are more than occasional or you control how they're shared (Acas, 2024).
- A worker who wins a tribunal claim can be awarded up to £5,000 (Acas, 2024).
- The withdrawn 2026 code of practice did not change the law. A revised code was pulled in 2026 "less than three months before implementation" (The Caterer, 2026) — but the Act, and your duties under it, still stand.
What counts as a "qualifying tip" (the line that decides everything)
Before the mistakes, get the one distinction that every trap turns on. The Act covers qualifying tips — and whether a charge is a qualifying tip is about control, not what you call it.
A payment is a qualifying tip you must pass on in full if it's a tip, gratuity or service charge that the employer receives, or over which the employer has control or significant influence over how it's allocated (Acas, 2024). A discretionary service charge added to the bill, collected by you and paid out through the till, is the textbook example: it's yours to distribute, so it's owed to staff in full.
A genuine, separately described business charge that is retained as revenue and isn't presented as a reward for service can, in principle, be kept. That's the gap the "admin fee" trap tries to drive through — and why the label you choose doesn't settle anything. If the charge behaves like a service charge, it's treated like one, whatever the menu calls it.
| Qualifying tip — must go to staff in full | Genuine non-tip charge you may keep |
|---|---|
| A tip, gratuity or service charge you receive or control | A separate cost you'd charge regardless of service |
| Presented as a reward for good service | Not presented as a reward for service |
| You decide (or influence) how it's shared | Honestly described — a true corkage or room hire |
| Owed to workers 100%, no deductions | Retained as taxable business revenue |
Mistake 1: Relabelling a service charge as an "admin" or "brand" fee
The trap: rename the old service charge as an "admin charge", "brand fee", "cover charge" or "ambience fee" so the money stays with the business rather than the staff. This is the single most-reported dodge since the Act came in.
An investigation into London venues found a spread of relabelled charges (London Centric, 2025):
- a 12.5% "admin charge" at L'Antica Pizzeria;
- a 15% "brand fee" at Ping Pong;
- a £2 cover charge at The Wolseley and a £1 cover charge at Harrods;
- a £2-per-person cover at Richard Caring's Sexy Fish, Scott's and J Sheekey;
- an "ambience fee" at Bacchanalia;
- a £1.50-per-diner charge for linen at the London Steakhouse Company;
- a 10% "cover charge" at Jamavar, sitting on top of a separate 5% service charge that does go to staff.
Unite organiser Bryan Simpson called the approach "almost certainly a breach of the Fair Tips Act, at least in spirit if not the letter of the law" (London Centric, 2025).
The fix: don't rename a service charge to keep it. If a charge is really a reward for service or you decide how it's shared, it's a qualifying tip and it goes to staff — the wording on the bill won't protect you. If you want a genuine non-tip charge (a true cover or corkage that funds a real, separate cost and isn't a stand-in for service), describe it honestly, keep it off the back of service quality, and take advice before you add it. When in doubt, treat it as a tip.
Mistake 2: Running with no written tipping policy
The trap: sharing tips the way you always have — a quiet word with the team, a split that "everyone understands" — with nothing written down.
By law you must have a written tipping policy where tips are paid more than occasionally or exceptionally, or where you have control or significant influence over how they're shared. The policy has to be available to all your workers, including agency staff (Acas, 2024). No document means you're in breach before a single penny is mis-split.
The fix: write a one-page policy and make it visible. It should say how tips are collected (card, cash, service charge), how they're allocated between front and back of house, how often they're paid out, and whether a tronc or a third party is used. Put it in your staff handbook and somewhere customers and new starters can find it. A short, honest policy published on your own website also answers the question diners increasingly ask — "does the service charge actually reach the staff?" — which is exactly the trust the relabelling scandals have dented.
Mistake 3: Not keeping tip records for three years
The trap: paying tips out correctly but keeping no paper trail — so when a worker asks how their share was worked out, you can't show them.
Employers must keep records of how tips were dealt with for three years from the date the tips were paid (Acas, 2024). A worker can ask for the records relating to them, and if you can't produce them, that's a separate failing from how you actually split the money.
The fix: record every tip period as you go — total collected, how it was allocated, who received what, and when it was paid. A simple spreadsheet or your payroll or POS system is enough, as long as it's kept and retrievable for three years. Build it into your weekly close so it's never a reconstruction job months later.
Mistake 4: Allocating tips unfairly or without a clear basis
The trap: splitting tips in a way that looks arbitrary — all to front of house, nothing to the kitchen, or shares that shift depending on who's asking — with no principle behind it.
The Act requires tips to be allocated fairly between workers, and your written policy has to set out the basis for the split (gov.uk, 2024). "Fair" doesn't mean identical — you can weight by role, hours or contribution — but it does mean consistent, explainable and applied the same way each period.
The fix: decide the basis (by hours worked, by role weighting, equal shares, or a points system) and write it into the policy. Include back-of-house if they contribute to the service the tips reward. If you use a tronc, let the troncmaster run the allocation independently — but the fairness and record-keeping duties still apply. Review the split with the team so it's understood before a dispute, not after.
Mistake 5: Deducting card fees or admin costs from tips
The trap: skimming the card-processing fee, an "admin" percentage or a breakage charge off the top of the tip pot before it reaches staff. It feels reasonable — the card company charged you — but it's exactly what the law stopped.
The Act makes it mandatory for all tips to be passed on to workers without deductions (gov.uk, 2024). Taking off card fees, a cut for the business, or any other cost before you distribute is not allowed for qualifying tips. The only permitted deductions are the ordinary statutory ones such as tax and National Insurance on the worker's share.
The fix: pass on 100% of qualifying tips and absorb the card-processing cost as a cost of doing business — the same way you absorb it on the rest of the bill. If card fees are squeezing you, deal with that through your payments provider and margins, not through the tip pot. It sits alongside the other fixed costs eating independents right now, from wages to business rates — but tips are the one bucket the law puts firmly off-limits.
Mistake 6: Assuming the withdrawn 2026 code means "nothing's changed"
The trap: reading that the government pulled its updated tipping code in 2026 and concluding the whole thing has gone away, so you can relax.
A revised statutory code of practice was published in June 2026 and was due to take effect that October, subject to Parliament. It was then withdrawn "less than three months before implementation", with the reforms now folded into the Employment Rights Act and no new date set (The Caterer, 2026). UKHospitality's Allen Simpson said operators had been "left in limbo" (The Caterer, 2026).
The fix: treat the Act and the existing 2024 code as fully in force — because they are. What was withdrawn was a revised code; the original statutory code, published on 29 July 2024, still applies, and employment tribunals have a duty to take it into account where relevant (gov.uk, 2024). Nothing about your duties changed. Keep the written policy, keep the records, pass on the tips in full, and watch for the next date rather than waiting for it.
What you can still charge (and how to stay on the right side of the line)
You're not banned from adding anything to a bill. You can still run a discretionary service charge — as long as it's genuinely discretionary and goes to staff in full. You can charge for genuinely separate things that aren't dressed-up service: corkage, a private-room hire, a set per-head price for a booked event. Bear in mind that a genuine business charge is your revenue, so — unlike a tip paid straight to staff — it falls inside the scope of VAT, which is another reason not to dress a service charge up as one.
The test is substance, not the label. Ask yourself: if this charge is really a reward for good service, or if I decide where the money goes, it's a qualifying tip and it belongs to the team. If it's a true, separately justified cost that I'd charge regardless of service, it can be business revenue — but describe it plainly and don't use it as a back-door service charge. The venues that ended up named in the press didn't fail a technicality; they failed the sniff test. Don't give an inspector, a journalist, or an aggrieved ex-employee a reason to apply it to you.
Frequently asked questions
Can a UK restaurant keep any of the service charge in 2026?
Not if it's a qualifying tip. A discretionary service charge that you collect and control is owed to workers in full, with no deductions, under the Employment (Allocation of Tips) Act 2023 (gov.uk, 2024). You can only retain a charge that is a genuine, separately described business cost — not a renamed service charge.
Is an "admin fee" or "brand fee" instead of a service charge legal?
Using one to keep money that is really a service charge is the trap this guide is about. A union organiser described the practice as "almost certainly a breach of the Fair Tips Act, at least in spirit if not the letter of the law" (London Centric, 2025). The label doesn't change the legal test — control and whether it rewards service do.
Do I legally have to have a written tipping policy?
Yes, where tips are paid more than occasionally or exceptionally, or where you have control or significant influence over how they're allocated. The policy must be available to all workers, including agency staff (Acas, 2024).
How long do I have to keep tip records?
Three years from the date the tips were paid. A worker can request the records that relate to them (Acas, 2024).
What can a worker win if they take me to a tribunal over tips?
If a claim is successful, an employer could have to pay the worker up to £5,000 (Acas, 2024). That's per worker, so an issue affecting the whole team multiplies quickly.
Can I deduct card processing fees from tips before paying staff?
No. The law requires all qualifying tips to be passed on to workers without deductions (gov.uk, 2024). Only ordinary statutory deductions such as tax and National Insurance apply to the worker's share. The card fee is your cost to carry.
Do kitchen and back-of-house staff get a share of tips?
They can and often should. The Act requires a fair allocation, and your written policy sets the basis for the split (gov.uk, 2024). Fair doesn't mean equal, but it has to be consistent and explainable, and there's no rule shutting the kitchen out.
Did the government scrap the tipping rules in 2026?
No. A revised code of practice was withdrawn in 2026 "less than three months before implementation" (The Caterer, 2026), but the Employment (Allocation of Tips) Act 2023 and its original 2024 statutory code remain fully in force.
Does the Act apply across the whole UK?
The statutory code of practice applies to England, Scotland and Wales (gov.uk, 2024). Northern Ireland has its own employment law framework, so check your local position if you operate there.
What's the difference between a tip, a service charge and a cover charge?
A tip is a voluntary payment for service; a discretionary service charge is a percentage you add that the customer can decline. Both are qualifying tips if you control them. A cover charge is a fixed per-head amount — and whether it's a qualifying tip still turns on control and whether it rewards service, not on the name.
The bottom line
The tipping rules didn't get harder in 2026 — they stayed exactly as they were, and the only thing that changed is how inventive some operators got at avoiding them. For an independent, the honest route is also the cheapest one to defend: pass qualifying tips on in full, write down your policy, keep your records for three years, and don't let a creative label turn into a £5,000-a-head problem. Being plain with your team and your customers about where the service charge goes isn't just compliance — it's one of the few reputation wins sitting right there on the bill.
