Don’t let your tips policy become a horror show!


Tips, gratuities and service charges call them what you will; they are a fundamental part of the UK hospitality business and vital to most employee’s income.

Although troncs are a win for both employees and employers, saving NI, helping employee morale and engagement, and supporting recruitment and retention but, there is a darker side to troncs when operated by those not experienced in the nuances of the compliance.

So here are some of the things to be aware of unless you want to face the ultimate horror … investigation by HMRC.


#1 Allowing staff to take tips in cash from the till

If tips are paid through card or contactless, they must be paid out through payroll. Where once it was acceptable to allow staff to ‘cash out’ from the till, since the pandemic, HMRC has updated their regulations so that monies cashed out instead of paying through the payroll is seen as potential tax evasion.

Furthermore, if you allow staff to take money, in lieu of tips, from the till, your balance will be wrong against your EPOS system, causing additional problems for the business. For more information on this, check out the blog  ‘Could you be an EPOS tax evader without realising it?

#2 Running your tronc as a stand-alone PAYE scheme

Some businesses think a tronc scheme must run through a separate PAYE scheme. This is not the case. It should be run through a PAYE, but it can be your employer PAYE.

Why is this a horror story? The problem is that by having a separate PAYE for Tronc, employees are classed as having ‘other employment and tax at the basic rate is deducted through the Tronc PAYE.

In addition, the Real Time Information (RTI) system cannot see any difference between ‘other’ or tronc payments, which can result in employees being issued split tax codes every month. Split tax codes can mean a split personal allowance, resulting in employees paying too much tax if their allowance is stretched across both codes. Read our blog ‘Why a separate tronc PAYE scheme can make a mess of tax’ for more information.

#3 Using tronc to ‘top up’ salaries to NMW levels

It is not unheard of in the hospitality sector for staff salaries to fall below the National Minimum and Living Wage to be topped up with tips.

This is not only unethical but also illegal and contravenes National Minimum Wage legislation.

The blood-curdling consequence of falling foul of this legislation is that HMRC will charge 200% of the underpaid National Minimum Wage as a penalty. Plus, there is the possibility of a penalty for any underpaid tax and employer National Insurance.

Whether you have a tronc scheme or other tipping policy, your staff must be paid at least NWM before the additional income from tips, service charges or gratuities.

#4 Using the tronc payments to pay bonuses

The purpose of a tronc scheme is to create a fair, ethical and consistent set of rules for distributing tips and service charges to employees. If an employer uses some Tronc funds to reward a particular staff member without fair reason approved by the Troncmaster, this contravenes the Tronc scheme.

Any performance-related pay should come from the business directly and not the tips provided by customers.

There may be room for additional tips to be paid to employees within the Tronc scheme, but these must be at the discretion of the Troncmaster and not the Business Owner. Any decisions must also be recorded and can only happen if there is a clear capacity to allow this within the employee tronc agreement.

#5 Including non-discretionary service charges in the tronc scheme

A tronc scheme is designed to distribute discretionary pooled tips, service charges or gratuities.

If your business has a compulsory, receipt-itemised service charge, then this is classed as a direct charge by the company, in the same way they charge for food and drink. This makes it income and subject to VAT, income tax, National Insurance and corporation tax, where applicable.

If the money from this compulsory service charge is distributed to staff through payroll, it is subject to tax and National Insurance as it is not part of the tronc fund.

The easy way to include service charges on the tronc is to make them discretionary. This doesn’t prevent you from adding to the bill at the point of payment; it just means you must make it clear to customers that they can decline or alter the service charge amount.

#6 Guaranteeing a tronc rate as part of the employee contract

It may be tempting to do this, especially in a market where recruitment is a challenge. But doing this is a big no-no.

Decisions regarding the tronc scheme need to be outside of employment. So, if someone responsible for hiring and firing has a hand in the Tronc scheme by deciding who gets what as part of their employment contract, it automatically makes it non-compliant. Any payments listed in an employment contract outside of allowable expenses or benefits are classed as payment from employment and therefore subject to National Insurance. And this extra cost is a nightmare!

#7 Having a member of the leadership as the Troncmaster

This is one of the most common mistakes, but the consequences are no less horrific!

Research conducted with 500 hospitality businesses uncovered the shocking statistic that over 50% of Tronc schemes might be non-compliant because of their choice of Troncmaster. The Troncmaster role holds a great deal of responsibility, so it would seem reasonable to make that person someone senior within the business.

This is problematic because this person will usually have hiring responsibilities, which would make them ineligible to be a Troncmaster. To escape National Insurance liability, employees must be paid outside employment. That means nobody in charge of the Tronc scheme can be a leader or have the power to employ people in the business. So that cuts out many General Managers, Restaurant / Bar Managers and HR staff.

The consequences of being non-compliant – a spine-chilling HMRC investigation with the employer being responsible for non-payment of National Insurance going back up to four years!


These are just some horror stories we come across when supporting businesses navigate the minefield of tronc schemes. If you would like to learn more about avoiding the most common Tronc pitfalls, download our Free Guide, ‘The Ultimate Troncmaster troubleshooter Guide,’ or contact us for a free review of your tips process.