In the UK, it is common to see a service charge applied to restaurant, café and bar bills. The charge is often 12.5% of the bill amount in London, but can span between 10% and 20% around the country.

Other food-and-drink places, hotels, taxi drivers and hair salons accept tips, which are not automatically added to the bill. As a business, which one should you accept?

Difference between service charge and tips

Firstly, what characterises service charges versus tips?

Service charges are imposed on food bills, either as a “discretionary” or “compulsory” fee. They differ this way:

  • Compulsory service charge: Must be stated to the customer in advance of ordering. The customer can only refuse to pay it if the service was poor.
  • Discretionary service charge: Can be added to the bill receipt at the end of the meal, but the customer can decide not to pay it in any case.

In both cases, the charge is added to the bill by the business and not initiated by the customer.

Tipping is also a charge for the service, but it is more ‘freestyle’. Tips are completely voluntary in the UK and open to any amount, high or small, or the customary decision to add 10-20% of the bill.

Although voluntary, there is a social expectation to provide a tip in restaurants if there is no service charge added. However, if you’re just buying a coffee in a small café or beer at the pub, a tip is rarely expected.

Service charge definition

A charge set by the business for the service received, added to the bill as a compulsory or discretionary fee.

Tip/gratuity definition

Money voluntarily given to someone as a reward for their service.

Is there a difference between gratuity and tip? Some say that gratuities are usually paid by card in addition to the bill amount (on top of service charge), while tips are often paid in cash. Others see them as synonyms.

Alternatively, some businesses impose a cover charge, which is a fixed amount payable by the customer.

Which should you accept?

The choice between service charge and tipping is really up to you, but the one you choose should adhere to the associated tax and National Insurance rules laid out by HMRC.

Some customers find it easier to deal with service charges because they don’t have to decide what amount tip is fair – it is decided for them. Others would rather not be forced an amount on their bill, in which case a tipping system would be better.

For the business, the choice between tipping and service charging also depends on the system preferred for the point of sale, accounting and staff wages. For example, you may choose tipping-only which goes straight to the employee’s pockets, and only pay staff minimum wage, or accept compulsory service charges, in which case this can go to a higher hourly pay that is stable for everyone.

service charge vs tips

A clear tipping policy is necessary, especially if you’re pooling gratuities in one pot (i.e. ‘tronc’).

The percentage of a service charge is also worthy of consideration. For example, in cities where food is already expensive, adding 20% to the bill could seem a bit over the top for those who already feel they are splurging on a fancy meal out. A fee around 10%-15% is arguably less problematic for customers, while a higher fee is better for places where customers go more for the experience or quality of service than the food or drink.

Whichever way you’re paid for customer service, any organised establishment should have clear guidelines for how the money is distributed amongst staff.

What about accepting both?

What if you accept service charge – can you then accept tips too? The short answer is yes, in fact, this is common. Some customers add money on top of the service charge, in which case the surplus is seen as a voluntary tip separate from the service charge.

To maximise the overall amount given for the service, you could choose to add a smaller-than-average service charge of, say, 10%. With such a “base” charge, customers may be more inclined to add a small tip in cash or by card. The total amount of the two is likely higher than if the customer only paid a voluntary tip.

Even if you don’t encourage tipping with a service charge, you still need a clear policy at the workplace in case employees receive gratuities separately. If a voluntary amount is added to a card payment, it is the employer’s responsibility to process this in accordance with HMRC and internal policies.