A tronc is a separate arrangement for sharing tips and voluntary service charges among staff, run by a troncmaster rather than the employer. If it is set up properly, with the employer playing no part in deciding who gets what, tronc payments are free of National Insurance for both employer and staff, although income tax is still due. Since 1 October 2024, employers must also pass on all tips in full and follow a written tipping policy.

For restaurants, bars, cafés and hotels, how tips are handled affects payroll costs, staff pay and legal compliance. This guide explains the tax and NI treatment of tips, how a tronc scheme works, what the tipping law requires and a worked example for a Bolton restaurant.

How tips are taxed in the UK

Tips are always subject to income tax. Whether National Insurance applies depends on how the tip reaches the employee and who decides how it is shared.

How the tip is paid	Income tax	National Insurance
Cash given directly to the worker and kept by them	Yes, worker declares it to HMRC	No
Tips paid to the employer and shared out by the employer through payroll	Yes, through PAYE	Yes, employer and employee NI
Tips shared through an independent tronc	Yes, through a separate PAYE scheme	No
Compulsory service charge	Yes	Yes, always
Voluntary (discretionary) service charge	Yes	Same as tips

Tips do not count towards the National Minimum Wage. Staff must receive at least £12.71 an hour (if aged 21 or over) from their basic pay, with tips on top.

What is a tronc scheme?

A tronc is a pool of tips and voluntary service charges shared out by a troncmaster. This is usually a senior employee, such as a head waiter or restaurant manager, but can be an outside person. Some troncs are run by a staff committee.

For these payments to be free of National Insurance, one of two conditions must be met:

• the money was never paid to the employer and the employer does not pass it on, or
• the employer does not decide, directly or indirectly, how the tips are allocated.

In practice, the second condition is the key one. The employer can take the card tips and hand the total over, but the person running the scheme, or the staff committee, must decide who gets what. If the employer sets the points system or can overrule them, HMRC treats the employer as allocating the tips, and NI is due.

Running a tronc: PAYE and employer obligations

The arrangement is not tax-free. Income tax must be deducted from the payments through a separate PAYE scheme.

• The troncmaster is personally responsible for running that PAYE scheme and deducting income tax.
• This PAYE scheme must be separate from the employer’s main scheme, although the same payroll software can be used.
• The employer must tell HMRC that someone other than the employer is controlling and sharing the tips.
• If the person running it is a director or officer of the employer, the payments must go through the employer’s own payroll.
• Compulsory service charges cannot be put through the pool to avoid NI. They are always subject to NI when paid to staff.
• The employer stays responsible for PAYE if it is involved in allocating the tips.

If HMRC decides the arrangement is not independent, the employer can face a bill for unpaid employer and employee NI, plus interest and penalties, going back several years. Our guide to how far back HMRC can investigate explains the time limits.

The tipping law: Employment (Allocation of Tips) Act 2023

The Employment (Allocation of Tips) Act 2023 came into force on 1 October 2024, together with a statutory code of practice. It applies to every employer whose staff receive tips. Employers must:

1. Pass all qualifying tips, gratuities and service charges to workers in full, without deductions other than income tax and NI where these apply.
2. Share tips fairly between workers, following the code of practice.
3. Pay out tips by the end of the month after the month in which the customer paid them.
4. Have a written tipping policy if tips are received more than occasionally, and make it available to all staff.
5. Keep records of tips and how they were shared for three years.
6. Respond to a worker’s written request for tipping records, which they can make once every three months.

Agency workers are covered too. Workers can bring a claim to an employment tribunal if the rules are broken.

Changes under the Employment Rights Act 2025

The Employment Rights Act 2025 strengthens the tipping rules. Employers will have to consult workers, through a recognised trade union or worker representatives where there is one, before setting or changing their tipping policy, share an anonymised summary of the views, and review the policy at least every three years. A revised code of practice was published in draft in August 2026 and will apply once Parliament approves it. Now is a good time to review your tipping policy.

Worked example: tronc NI savings for a Bolton restaurant

A restaurant in Bolton town centre receives £80,000 a year in tips added to card payments. All staff are aged 21 or over and earn above the NI thresholds through their wages.

	Tips shared by the employer through payroll	Tips shared through an independent scheme
Tips paid to staff	£80,000	£80,000
Employer NI at 15%	£12,000	£0
Employee NI at 8%	£6,400	£0
Income tax	Due through PAYE	Due through separate PAYE
Total NI	£18,400	£0

With a properly run scheme, the restaurant saves £12,000 of employer NI a year and staff keep £6,400 more between them. The figures assume staff pay employee NI at 8%; staff earning over £50,270 pay 2% on the excess. If the employer still decides the allocation, the full NI is due, so the saving depends on keeping the tronc independent.

Use our National Insurance calculator to check the NI on individual pay. Our accountants for restaurants set up and review tronc schemes for hospitality businesses across Greater Manchester.

Setting up a tip-sharing scheme: practical steps

1. Agree who will run the scheme and confirm their role in writing.
2. Write a tipping policy that explains how tips are collected, the allocation method and how staff can raise concerns.
3. Make sure the person running it or the staff committee, not the business owner, controls the allocation.
4. Register a separate PAYE scheme and tell HMRC about the arrangement.
5. Keep compulsory service charges out of the pool.
6. Keep records of every payment into and out of the pool for at least three years.
7. Review the arrangement each year, especially when managers or ownership change.

Frequently asked questions

Get help with tips and payroll

Cangaf’s ACCA-qualified team helps hospitality businesses in Bolton set up compliant tronc schemes, run the payroll and write tipping policies that meet the law. Request a fixed-fee quote today.

Official guidance: HMRC guidance on tips, gratuities and service charges (E24), Tips at work, Statutory code of practice on distributing tips fairly and Tips and tax.