The British Hospitality Association has published a voluntary code of practice on service charges and are urging restaurants, including hotel restaurants, to disclose to customers exactly how they deal with discretionary service charge and non-cash tips.

The code, drawn up by the association following discussions with the Department for Business (DBIS), says that disclosure - at least by a written note available for inspection at each restaurant and on the establishment's website, if there is one - should explain how the business distributes the proceeds from the service charge to employees.

It states that disclosure should cover whether an amount is deducted for handling costs (and how much); how the remainder is shared between the restaurant and the employee; and the broad process for distribution. This should explain, for example, whether the amount is shared between the employees in the restaurant through a tronc system controlled by a representative of the employees.

There has been too little information in the past about the way service charge is collected, what it is for and who receives it. This has given rise to widespread criticism which has damaged the industry's reputation. The Code will ensure that restaurants make crystal clear how they distribute the proceeds of the charge, who gets it and what percentage, if any, is kept by the restaurant to cover legitimate costs.

The Code was circulated for comment to all BHA/RA committees and has been approved by the National Executive. Members are invited to implement the Code as soon as practical, but certainly in time for the introduction of new legislation which bans the service charge being used to make up the National Minimum Wage and came into effect on 1 October 2009.

The Code is a voluntary scheme and it can be downloaded here.

A new government code, also covering other sectors and providing other advice, has now been made available here.

The HM Revenue and Customs guide to taxation of tips and troncs has been revised to reflect the change in the law: click here for more information.