service-charge-vs-discretionary-tip

---
name: service-charge-vs-discretionary-tip
description: Classifies every charge on a bill as a mandatory service charge, a voluntary service charge, or a discretionary tip, because the three carry different National Insurance treatment and the wrong label can leave National Insurance unpaid on money that was always due. It works from how the charge was actually presented to the customer, not from what the business calls it internally, because the statutory Code's own test turns on whether the customer was told it was optional. Use before you add a service charge line to a bill, when a till system's naming does not match how staff actually describe the charge to customers, or before year end when National Insurance on service charges gets reconciled.
---

# The three charges that look the same and are not

You give this the wording customers actually see or hear about a charge, and how it reaches workers. You get back a classification against the Code's own glossary, the National Insurance treatment that follows from it, and any mismatch between the label on the till and the words staff use.

## What it does

1. **Classifies from the customer-facing wording, not the internal label.** The statutory Code's glossary defines a tip as "a spontaneous payment offered by a customer" and treats a service charge as voluntary only "if it is made clear to the customer that the charge is a purely discretionary amount and there is no obligation to pay"; anything else presented as an added charge is a mandatory service charge. The skill reads the actual wording on the menu, bill or verbal script, not the business's own name for the line item.
2. **Applies the different National Insurance rule to each category.** HMRC's guidance on tips, gratuities, service charges and troncs states that for a mandatory service charge, "National Insurance contributions are always due on the payments," and "this is regardless of how the money is shared out between employees." A genuine discretionary tip or a voluntary service charge paid through an independent tronc can fall outside that rule, under the same independence test used in the troncmaster-independence-check skill in this pack.
3. **Checks that none of the three count towards the National Minimum Wage.** HMRC's National Minimum Wage Manual states that from 1 October 2009, for a pay reference period starting on or after that date, "the payment of tips, gratuities, service charges and cover charges do not count towards National Minimum Wage pay," whichever of the three categories applies. A business cannot use any of them to top up a worker's base pay to the minimum wage.
4. **Flags the one exception that does count.** The same HMRC manual states that where the employer pays the amount to the worker, it is first included in total remuneration, and "a corresponding reduction is then made when calculating the worker's National Minimum Wage pay," so the net effect is the same as if it were excluded from the start; but if a payment "loses its original identity," for example by being folded into a general bonus pool, there is no longer an amount to deduct, which can create a different and worse outcome for the worker.
5. **Catches the mismatch between the till system and the till receipt.** A charge coded as "service charge, discretionary" in the till system but printed on the customer's receipt with no wording about it being optional, or added automatically with no opt-out offered, is classified by what the customer actually saw, which the Code's test turns on.

## Then it checks

1. Every charge type on the bill or menu has its exact customer-facing wording recorded.
2. Each charge is classified as mandatory service charge, voluntary service charge, or discretionary tip, using the Code's glossary test alone.
3. The National Insurance treatment stated for each charge matches HMRC's guidance for that classification, not an assumption carried over from a different charge type.
4. No charge of any classification is shown counting towards a worker's National Minimum Wage pay, except where it was paid through the employer's payroll and then correctly deducted back out again.
5. Any mismatch between the till system's internal label and the customer-facing wording is listed as a finding, not silently resolved in the business's favour.

Any check fails: name it, redo that step once. Failed twice: say what is wrong and stop.

## Rules
- Public information only. Never invent a fact, a number or a quote.
- Anything sent in someone's name says whose name it is.
- Never classify a charge as a voluntary service charge or discretionary tip unless the supplied customer-facing wording actually tells the customer it is optional.
- Never state a National Insurance figure; this skill classifies the charge type and states the rule that applies, and leaves the calculation to payroll or an accountant.
- This is a working document for the owner to check against their own menus, bills and till system, and for their accountant to confirm the National Insurance and National Minimum Wage treatment. It is not tax or legal advice.

## Built from
- Department for Business and Trade, "Code of Practice on Fair and Transparent Distribution of Tips", https://www.gov.uk/government/publications/distributing-tips-fairly-statutory-code-of-practice/code-of-practice-on-fair-and-transparent-distribution-of-tips-html-version, published 29 July 2024, in force 1 October 2024, read 4 November 2026: the glossary's definitions of tip and voluntary service charge, behind steps 1 and 5.
- HM Revenue and Customs, "Guidance on tips, gratuities, service charges and troncs" (E24), https://www.gov.uk/government/publications/e24-tips-gratuities-service-charges-and-troncs/guidance-on-tips-gratuities-service-charges-and-troncs, read 4 November 2026: the mandatory service charge National Insurance rule, behind step 2.
- HM Revenue and Customs, National Minimum Wage Manual, NMWM09340, https://www.gov.uk/hmrc-internal-manuals/national-minimum-wage-manual/nmwm09340, read 4 November 2026: the National Minimum Wage exclusion and the payroll reduction mechanism, behind steps 3 and 4.

# service-charge-vs-discretionary-tip

## You are given
For each charge type the venue uses: the till system's internal name for it, and the exact wording the customer actually sees or hears (menu text, receipt wording, a verbal script staff use). How the charge is routed once collected (through payroll directly, through an independent tronc, or paid to a worker with no business handling at all). Whether any amount from this charge ever appears in a worker's base pay calculation for National Minimum Wage purposes.

## Produce
Write into a `./service-charge-vs-discretionary-tip-output/` folder:

1. `charge-classification.csv` with columns: `charge_ref`, `till_system_label`, `customer_facing_wording_verbatim`, `classification`, `classification_basis`. `charge_ref` is S0001 upward. `classification` is exactly one of `mandatory service charge`, `voluntary service charge`, `discretionary tip`, `cannot classify, wording ambiguous`. `classification_basis` quotes the specific phrase in `customer_facing_wording_verbatim` that drove the classification, or states none was found.
2. `label-mismatch-check.csv` with columns: `charge_ref`, `till_system_label`, `classification`, `mismatch_found`, `mismatch_description`. `mismatch_found` is `yes` or `no`; `yes` when the till system's label implies a different classification than the customer-facing wording supports.
3. `ni-rule-map.csv` with columns: `charge_ref`, `classification`, `ni_rule_applied`, `ni_rule_source`. `ni_rule_applied` is exactly one of `NI always due regardless of distribution (mandatory service charge)`, `NI depends on tronc independence (see troncmaster-independence-check)`, `insufficient information to state a rule`.
4. `nmw-exposure-check.csv` with columns: `charge_ref`, `routed_through_employer_payroll`, `deduction_applied_before_nmw_calculation`, `verdict`. `verdict` is exactly one of `correctly excluded from NMW pay`, `included in NMW pay, deduction missing`, `not applicable (not paid through payroll)`.
5. `gaps.md` - a numbered list of: every `cannot classify, wording ambiguous` row; every `mismatch_found` of `yes`; every `insufficient information to state a rule` row; every `included in NMW pay, deduction missing` row.

## Rules
- Codex classifies from the supplied customer-facing wording only. It never infers that a charge is discretionary because the business calls it that internally.
- Codex never calculates a National Insurance amount or a National Minimum Wage top-up figure; it states which rule applies and leaves the arithmetic to payroll.
- Use British English, GBP and DD Month YYYY dates. No em dashes in any file you write.
- Every file ends with this line: this is a working document prepared for the owner to check against their own menus, bills and till system, and for their accountant to confirm the National Insurance and National Minimum Wage treatment. It is not tax or legal advice.

## Return
The absolute path of each file written and the row count of each CSV. The classification of every charge type, with the exact phrase that drove it. Every mismatch between the till label and the customer-facing wording. The National Insurance rule mapped to each charge. Every National Minimum Wage exposure found. The `gaps.md` item count.