HMRC have issued an update to guide E24 on 1st November 2024 in relation to the operation of a Tronc for the distribution of tips.
New requirement now apply to ensure that. Tips are received by the workers and not retained by the employing business.
Section 6 of the E24 guidance has been updated to advise the employer that they must contact HMRC to set up a tronc scheme.
The guide now states:
6. Income Tax and troncs
A tronc is run by someone usually known as a troncmaster. Where the troncmaster is in control of the tips and responsible for sharing them amongst employees, the employer must tell [HMRC] unless the arrangement came into existence before 6 April 2004. This is so [HMRC] can identify the person responsible for PAYE in each period.
[HMRC] may check an arrangement exists to share tips amongst employees and that the troncmaster accepts that role. A PAYE scheme must be set up for the tips in the troncmaster’s name unless different PAYE arrangements need to be made.
The troncmaster is personally responsible for all aspects of operating a PAYE scheme. They may be held responsible for any failure to deduct tax from payments from the tronc. Troncmasters who need help in understanding their PAYE responsibilities should contact us for advice.
A troncmaster with a PAYE scheme may use the employer’s payroll to operate PAYE on their behalf (the employer effectively acting as a payroll agent), but the troncmaster’s PAYE records must be kept separate from the employer’s. The tronc PAYE scheme must be entirely independent of the employer’s scheme and must be run as such.
If the employer, business partner or an official of the company (for example, a director) performs the role of troncmaster, they are considered to be making payments as if they were the employer and therefore the payments should be paid through the employer’s payroll.
Where the employer is involved in deciding the distribution of tips amongst employees or if mandatory service charges are distributed through the tronc, the employer is responsible for operating PAYE. This applies even if responsibility for making distributions to staff is delegated to a trusted employee.
National Insurance contributions and troncs
Where payments made from a tronc attract National Insurance contributions liability, the troncmaster is not required to pay National Insurance contributions on those payments. Responsibility for calculating any National Insurance contributions due and making payment to HMRC rests with the employer.
Payments of tips do not attract National Insurance contributions if the:
- troncmaster is allocating money that originally was not paid to the employer and the employer does not pay the money directly or indirectly to their employees
- employer does not determine, directly or indirectly, the allocation of those tips
Distributing tips fairly: statutory code of practice
The Employment (Allocation of Tips) Act 2023 makes it mandatory for all tips to be passed on to workers without deductions and came into force on 1st October 2024.
The code of practice provides guidance to employers and workers in tipping industries on the fair and transparent allocation and distribution of tips, gratuities and service charges.
Under the act, workers are able to enforce their rights through the employment tribunal system, where judges have a duty, where relevant, to take the code into account.
Opinion
So HMRC are asserting the requirement that a Troncmaster is independent from the employer and that the employer does not form part of the decision of who receives tips for the amounts to not be subject to National Insurance.
Of course where the distribution is determined either directly or indirectly by the employer, the employer will have the responsibility for deducting National Insurance and paying the secondary National Insurance employer contribution which rises to 15% from April 2024.
Either way, whether paid via the employer or a properly constructed Tronc, tips do not count as earnings for National Minimum Wages purposes since 1st October 2009. This remains the case whether the amounts are subject to National Insurance or not.
PAYadvice.UK 2/11/2024