Hospitality: Tronc & Tips Tax Explained

What is a Tronc?

A Tronc is a special arrangement used to distribute tips, gratuities, and service charges to employees. The person who runs it is called a "Troncmaster".

The Troncmaster decides how the tips are divided among the staff (e.g., between front of house and kitchen staff). Crucially, the Troncmaster must be acting independently of the employer.

The Tax Benefit of a Tronc (No NI)

The main reason employers and employees use a Tronc scheme is for the tax benefits.

• Income Tax: You ALWAYS pay Income Tax on tips, regardless of how they are paid to you.
• National Insurance (NI): If your employer directly controls and distributes the tips, you must pay NI on them. But if they are distributed via an independent Tronc, they are exempt from National Insurance.

This exemption saves you 8% on your tips (and saves your employer 13.8% in Employer NI).

Cash vs Card Tips

The rules differ slightly depending on how the customer pays:

• Card Tips / Service Charge: These go through the business bank account and must be processed via payroll (usually the Tronc) so that Income Tax can be deducted automatically through PAYE.
• Cash Tips handed to you: If a customer gives you cash directly and you keep it, you are legally responsible for declaring this to HMRC. Your employer does not deduct tax from cash tips you pocket.

Why does my tax code change?

If you receive cash tips, HMRC will usually adjust your tax code to collect the tax owed. For example, they might reduce your standard 1257L tax code, meaning you pay more tax on your basic wages to cover the tax you owe on the cash tips.