Discretionary Service Charge

That is what “discretionary” means.

It would certainly be unusual, but if you are unhappy and want them to know, you can do so. The "discretionary" element is so that VAT does not apply.

The rules say:

"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.

HMRC will accept that a payment is a voluntary service charge if it is clearly presented to the customer as an entirely optional payment."

https://www.gov.uk/government/publications/e24-tips-gratuities-service-charges-and-troncs/guidance-on-tips-gratuities-service-charges-and-troncs

This ‘discretionary charge’ is little more than a rip off. I had a Hyatt Hotel booked in Florence but when I read about the ‘discretionary charge’, I cancelled the reservation. Don’t pay it, no need to explain. The staff are paid are a wage

This nonsense is becoming more and more common. What is the 5% charge actually for? The rate that the hotel charge covers everything that is involved with running a hotel. I'm not asked to pay extra when I take my car for a service or when I pay for my groceries so why does this hotel think that it's OK to add an additional charge? I would point blank refuse to pay it when it came to checking out and the hotel doesn't need to be given an explanation for my refusal.

However....a 5% tax may soon be coming to the UK that will affect all tourists staying in hotels, B&B's etc as Labour have announced a new Tourist Tax and the London Mayor, Sadiq Khan has expressed an interest in imposing it at the highest rate of 5%. This could prove a costly burden to tourists.

What's the name of the hotel? I've seen discretionary service charges on restaurant bills but I didn't realise hotels were trying it on.

Tell them to go and take a running jump. It doesn't matter if you were happy or not. Don't encourage this sort of nonsense.

GerryM, it certainly does happen. The Dorchester, as just one example:

"Please note that a 5% discretionary service charge will be added to your room bill upon departure"

https://www.dorchestercollection.com/booking-terms

And Claridges is another:

"Rates are inclusive of VAT and subject to a 5% discretionary service charge."

https://www.maybourne.com/en/hotels/claridges/offers/a-family-story

Hmmm... I have to admit I struggle to care about guests at The Dorchester or Claridge's being ripped off for 5%. They're rich enough to afford it anyway.

While it's okay to ask for the charge to be removed, I hope you have already shared your disappointment with the hotel and given them the opportunity to fix it.

While it's okay to ask for the charge to be removed, I hope you have already shared your disappointment with the hotel and given them the opportunity to fix it.

The real point is that the hotel could have been wonderful. I, for one, would never have booked in a UK hotel which applied such a charge. If, by some accident I had booked such a hotel, I would have not be paying it under any circumstances.

We don't need such charges creeping into the UK.

Pay the due taxes and pay your staff properly out of the room rates (which are far from cheap in London), and cream off less profit.

I’m surprised how quickly the 10-12% service charges at restaurants have become in the UK the past few years, even in the small towns and villages. They were common in the cities back in 2022, but on my current trip they seem to be on most every restaurant bill everywhere. It’s not as bad as in the U.S., but things are definitely changing.

The VAT aspect has already been mentioned but staff receiving a proportion of their remuneration via sharing out of a discretionary service charge via a tronc system makes this not liable for National Insurance on both the employee & employer side. This therefore reduces the cost of employment for staff in the hospitality sector and explains why it is spreading out from restaurants into hotels.

This has a downside for the employee in that their base wage is the only part which is pensionable. It also makes the amount they receive variable through the year as it depends on turnover of the business in each month - as well as being affected by how many guests choose not to pay it.

Marco has it. It’s because of the different tax treatment of service charges. Quite complicated but while it is discretionary businesses obviously rely on the vast majority of guests paying it and that help with the accounting.

Businesses in the UK face a huge amount of costs and hospitality in particular is really struggling with a high minimum wage (relative at £12.71 it’s one of the highest globally), high business rates (a tax on premises) and high national insurance payments (a tax businesses pay for each employee) and high VAT (20% of every transaction).

Saying that, it’s only high end hotels that could get away with adding 5%. At the lower end of the market customers would revolt.

OP here. The replies have been hugely informative and helpful. Tomorrow at checkout I plan to review the bill carefully and choose not to pay the discretionary charge and any other unjustified charges beyond the daily rate, VAT etc.

"Hmmm... I have to admit I struggle to care about guests at The Dorchester or Claridge's being ripped off for 5%. They're rich enough to afford it anyway."

Being able to afford does not give green light to being taken advantage of.

The inequity of this system is that stiffing the staff by not paying the service charge doesn't harm the operator of the hotel at all. They still get their money in full. The way to do that is a long game by staying only at places without service charges.

(As a side note, by law all of a discretionary service charge has to go to the staff, managed independently of the business. The money is paid net of pay as you earn income tax, so the tronc is sort of like a second employer.)

Business owners still have to pay minimum wage to their staff. Any service charges paid cannot legally be used to go towards this and are additional payment on top of the minimum wage.

I am not a fan of US tipping culture coming over here and don't advocate for the addition of this charge to hotel bills. However, for information purposes I am sharing this article from London Centric that explains how workers take home more of the money given to them as tips than they do as a raise, which is why it seems some businesses may be introducing this: https://www.londoncentric.media/p/how-us-style-tipping-culture-came

Again, I am not trying to defend this charge, this is just to share a bit more context.

... and as a little more context, in restaurants the proportion of staff remuneration met via the service charge can easily be as much as half, even a little more, with the base paid by the restaurant being minimum wage. Not sure whether hotels are as extreme.

But, do the staff actually receive this ‘discretionary tip’? Tipping has been a part of the UK culture since 1978, when I moved to London. Caught a taxi, paid the driver, who then yelled out at me that ‘you need to learn tip in England’. I prefer to tip the individual (in hotels) who has provided excellent service - at least I know they have received it.

But, do the staff actually receive this ‘discretionary tip’?

It is the law to do so.

The Employment (Allocation of Tips) Act 2023 (known as 'The Tipping Act' to its close friends) applies to tips, service charges and gratuities that employers have 'control or significant influence' over.

By law, employers must:

• pass on these tips to workers without any deductions for themselves or processing
• share these tips between workers in a fair and transparent way, following the Code of Practice
• have a written policy about these tips and keep records of them

The tips have to be paid over by the end of the following month that they arise.