Calculate how tronc scheme tips and service charges are taxed for hospitality workers. Find take-home pay from gratuities and employer National Insurance implications.
A tronc is a separate pay arrangement used in the hospitality industry to distribute tips and service charges to employees. A 'troncmaster' (who may be an employee or third party) controls the allocation and distribution of tronc payments. When managed by a troncmaster, the payments are not subject to employer or employee National Insurance — only income tax is deducted under PAYE.
Tips paid through a qualifying tronc scheme controlled by a troncmaster are exempt from National Insurance (both employee Class 1 and employer Class 1A). However, if the employer controls the distribution of tips directly, NI applies. Cash tips received directly from customers are also NI-exempt but must be declared for income tax via Self Assessment if total annual tips exceed the personal allowance threshold.
No — since October 2024, tips cannot be used to make up National Minimum Wage. Employers must pay NMW from wages alone; tips are on top of NMW. Before the Employment (Allocation of Tips) Act 2023 came into force, some employers were using tips to supplement wages — this is now illegal. All tips must be distributed fairly and workers can request a statement of tip allocation.
All tronc payments (whether NI-exempt or not) are subject to income tax through PAYE. The troncmaster is responsible for operating PAYE on tronc distributions. The payments are added to the worker's total income for the year and taxed at their marginal rate (20% basic rate, 40% higher rate). Workers should check their P60 includes tronc income.
The Employment (Allocation of Tips) Act 2023 (effective October 2024) requires employers to: pass 100% of tips to workers (no deductions for card processing fees etc.); distribute tips fairly (a written policy must be available); provide workers with a statement of their tip allocation on request within 4 weeks. Workers can bring tribunal claims for breach of the Act, with a maximum award of 52 weeks' pay.