I was recently given a bill at a London restaurant with a 15%(!) service charge.

Why have increasing services charges become so widespread? As with everything in life, there’s a tax angle:

1. Tips can generally be paid to employees without Employers’ or Employees’ National Insurance. This makes them a tax efficient way to pay staff.
2. Technically a voluntary payment, VAT is not payable on the service charge unlike the rest of the meal so the restaurant doesn’t need to pay 20% of it to HMRC.