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It is established territory that tips and gratuities are taxable even though they may be paid by someone other than the employer (see E4.470). In Calvert v Wainwright¹, a taxi-driver's tip was held taxable, since it was made because of the services rendered by the employee in the course of his employment.

The decision in IRC v Herd², indicates that even a casual tipper is an employer of the person tipped, and therefore, at least in theory, liable to account for Class 1 NIC on that tip. However, payments not made directly or indirectly by the actual employer, nor out of sums placed at the actual employer's disposal, nor directly or indirectly allocated by the actual employer to the employee, are not subject to NIC, if only for the practical reason that neither the actual nor the deemed employer is normally in a position to make any deduction from such payments³