In the UK, whether you must pay a service charge at a restaurant depends on the type of charge applied. The Government website defines a service charge as 'an amount added to the customer’s bill before it is presented to the customer'. There are two types: a voluntary (or discretionary) service charge and a mandatory service charge.
Voluntary vs mandatory service charges
As the name suggests, a voluntary or discretionary service charge does not automatically have to be paid. The Government website states: "If it is made clear to the customer that the charge is a purely discretionary amount and there is no obligation to pay, the payment is a voluntary service charge."
It adds: "HMRC will accept that a payment is a voluntary service charge if it is clearly presented to the customer as an entirely optional payment. The literature shown to the customer should reflect this and be consistent with advice given to customers by employees. Any amount entered on an ‘open’ credit or debit card slip by a customer is likely to be a gratuity."
Consumer Rights Act and transparency rules
According to Section 62 of the Consumer Rights Act 2015, any terms of a contract must be clear, fair, and transparent, including eating out at a restaurant. If a service charge is mandatory, this must be clearly communicated ahead of time. If it is not mentioned on the menu or in a visible location, customers cannot be forced to pay it once they receive the bill, according to the Consumer Protection Bureau.
The service charge often stood at around 10-12.5 per cent of the bill, but it has crept up to 15 per cent in many areas - especially London - with some even going as high as 20 per cent. There is no law in the UK that compels restaurants to charge a service fee, and any charges on a bill must be clear and transparent, as per the Consumer Protection from Unfair Trading Regulations 2008. Section 5 of the regulations states that businesses must not engage in unfair commercial practices, including failing to disclose important information that could influence a consumer’s decision to buy a product or service.
Tronc and VAT implications
According to the Employment Rights Act 1996, employees must receive their agreed-upon wages, and if a service charge is meant to be distributed to staff, it should be done transparently. A tronc is a special pay arrangement used to distribute tips, gratuities and service charges. The troncmaster is the person, other than the employer, responsible for arrangements to share tips among employees.
Tips are outside the scope of VAT when genuinely given freely, regardless of whether the customer requires the amount to be included on the bill, payment is made by cheque or credit or debit card, or the amount is passed to employees. Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them, meaning they are standard rated. If customers have a genuine option as to whether to pay the service charges, they are not a consideration, and they fall outside the scope of VAT.
Your rights when paying the bill
The Unfair Terms in Consumer Contracts Regulations 1999 protects consumers from unfair or hidden charges in contracts, making it clear that any charges added to a bill must be disclosed in advance. So, if it is made clear in advance that the service charge is discretionary, it is up to you whether you pay it or not - although it can sometimes be frowned upon socially to ask to have the service charge removed from the bill before paying. Simply asking for it to be removed or reduced is your right though, as outlined under the Consumer Protection from Unfair Trading Regulations 2008.
Legally, you would have to pay a compulsory service charge provided it is clearly communicated beforehand. If there is any confusion, you are advised to ask a member of staff as soon as possible. Leaving a tip afterwards is also up to you, although many would argue it is not necessary given that you have already paid a service charge.
