VAT on Tips

We are a casual recruitment agency and work with clients who receive tips who are going to ask us to pass onto our casuals via payroll. When it comes to charging the client for the tip we were going to add a certain % on top of the gross tip payable to casual to cover Employers NI, Employers Pension & Apprenticeship Levy ie say 14%? As an example, a £50 tip paid to a casual (Gross), we would charge our client £57. Do we have to add VAT on top of this or do tips fall outside the scope of VAT? Thanks

Hi.
 

If you make a compulsory service charge, that payment forms part of the consideration for the supply, and therefore follows the liability of that supply. Optional service charges are not consideration and are therefore outside the scope of VAT. If a customer freely gives a tip over and above your total charge no VAT is due on the tip — again it’s outside the scope of the tax. Please refer to the following link :  VAT guide (VAT Notice 700)  . Thank you .