A tronc is a system where tips are collected, managed, and distributed by someone other than the employer, typically a troncmaster. It's important to note that tips received through a tronc should be subject to taxation before they are handed out to employees. However, when the tronc is structured properly, it can allow tips to be paid without National Insurance contributions, resulting in potential savings for the recipients.
Tips Paid Through Work
You do not have to report tips:
passed on by your employer, for example, discretionary tips customers added to their bill payments
paid through a separate system for managing and sharing out tips at your workplace (known as a ‘tronc’)
Any Income Tax you owe on these tips will be deducted when you get paid.
Whether you have to pay National Insurance depends on how much your employer is involved in deciding how the tips are shared out.
If you have to pay National Insurance your employer will deduct it when you get paid.
Service charges
These are added to the bill before it’s given to the customer. Mandatory service charges are considered non-discretionary tips, treated as business income, subject to VAT, income tax, and corporate tax. However a compliant tronc scheme avoids NI, benefiting both employer and employee.
If the charge is compulsory, it’s not a tip so if your employer gives it to you, it’s treated in the same way as your wages.
If it’s voluntary, you pay tax and National Insurance in the same way as for tips.
Troncmaster Solutions
If you're an employer looking to establish a tronc scheme, reach out to our team for assistance.
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