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 15% 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.

How Much NI Do You Save With a Tronc? Real Numbers

The NI saving through a compliant Tronc scheme is significant. Here is the difference on a typical hospitality worker receiving £400/month in tips:

*Income Tax still applies to both. At 20% income tax: both result in £320 after-tax. The saving is purely NI.

The Employment (Allocation of Tips) Act 2023 — Full Rules From October 2024

The Tips Act came into force on 1 October 2024. A revised Code of Practice is expected in October 2026 under the Employment Rights Act 2025 amendments. Key employer obligations:

• 100% pass-through: All tips, gratuities and service charges must be passed to workers. No deductions for admin, credit card processing, or rent.
• Written tipping policy: Employers must publish a written policy on tip distribution — workers can request it at any time.
• Records for 3 years: Distribution records must be kept and provided to any worker who requests them within 4 weeks.
• Payment deadline: Tips paid no later than the end of the month following the month received.
• Agency workers included: Tips must be allocated to agency workers on the same basis as direct employees.
• Cannot count toward NMW: Tips cannot top up your National Minimum Wage. Your employer must pay NMW entirely from regular wages.

Workers can claim up to £5,000 compensation plus unpaid tips at Employment Tribunal for non-compliance.

Sector-by-Sector: How Tips Are Typically Split

• Restaurants: Most common Tronc user. Front-of-house vs kitchen split varies — common splits are 70/30 or 60/40.
• Hotels: Tronc usually covers restaurant and bar staff. Housekeeping may have a separate allocation or none.
• Pubs & Bars: Smaller tips, less formal Tronc. Cash tips common — must be declared via Self Assessment.
• Delivery apps (Deliveroo/Uber Eats): Tips are self-employment income — declare through Self Assessment.

What To Do If Your Employer Is Keeping Your Tips

1. Request a copy of the written tipping policy (legally required)
2. Request a record of tip distributions (required within 4 weeks)
3. Raise a formal grievance in writing
4. Bring a claim to the Employment Tribunal within 12 months of the violation

See also: Wetherspoons Tronc Explained · Minimum Wage Checker