With the Employment (Allocation of Tips) Act now in effect, hospitality businesses will be ensuring compliance with HMRC and the tipping regulations. Mark Taylor explains why reviewing your current tipping practices is crucial now more than ever.

We are aware that businesses are dealing with the cost of living crisis, and with cashflow still a concern for most, the majority of businesses have been hugely focussed on surviving. However, with the Employment (Allocation of Tips) Act in place, which focusses on fairness of the tip allocations, now is the ideal time to review your tipping practices to ensure they are compliant with HMRC. Doing so will also help your business seamlessly retain more cash.

Why review your tipping practices?

Your tipping practices should be regularly reviewed and updated to ensure they are efficient and meet HMRC requirements. Practices that are dated may lend themselves to unnecessary tax or National Insurance Contributions (NICs) at a cost to your staff or you, the employer. If they are outdated, they most certainly won’t be the fairest, or the most transparent way of distributing tips among your employees.

One of the simplest options to bring your tipping arrangements up to date, and seamlessly retain more cash by removing the need to pay NICs, is a tronc.

What's a tronc? 

A tronc, also known as a tronc scheme or tronc system, is a special payment arrangement that lets businesses fairly distribute staff tips, gratuities, and service charges given by customers. The benefits of implementing a tronc include:

• They offer significant savings to staff and businesses through exempt NICs

• Staff can get up to 100% ownership of their hard-earned tips with a say in how they’re shared out

• The arrangement can be genuinely independent, free from employer interference, run for the benefit of staff 

• They can improve staff motivation and retention as employees feel valued and rewarded

How does a tronc work?

Many employers decide to distribute gratuities by adding them to the general payroll. But there’s a drawback: distributing gratuities in this way results in the extra being taxed as salary, meaning staff receive it net of income tax and NICs. Discretionary payments of tips allocated through a tronc, where all qualifying conditions are met, are exempt from employers and employees making NICs. Given that employer and employee NICs total over 28%, this represents significant savings. Put simply, a tronc leaves everyone better off.

How we can help

Get in touch for assistance with updating your tipping system. We can review your existing tipping practices and highlight the cost savings available to both you and your staff if you run a tronc.

If you wish to implement a tronc, Buzzacott can manage the process and act as your independent troncmaster. As your appointed troncmaster, we’ll ensure you and your staff receive all the benefits mentioned earlier as well as provide the assurance that:

• The tronc is not influenced by employers, nor by bias or favouritism, and represents what’s in the best interest of all employees

• The distribution and pooling of tips is completely transparent for staff and you

• The tronc remains in line with the latest HMRC policy changes ensuring you’re safeguarded from any HMRC challenge

• Staff are relieved of the administrative burden of running the tronc and can focus solely on their daily tasks

Whether you’re a new or an established business, we can help you set up and implement your bespoke tronc scheme.