Administration of Troncs

The long-running series of disputes between employers in the hospitality industry and HM Revenue and Customs (HMRC) concerning the taxation of employees’ tips and their National Insurance (NI) status seems to have been concluded by the issue of new guidance on the operation of ‘troncs’.

HMRC have, in effect, accepted the industry’s contentions regarding these. The following points have been clarified:

• no approval from HMRC is required for the appointment of a troncmaster;
• the troncmaster can be anyone other than ‘the employer, business partner, or official of the company’ (so a manager is acceptable);
• the business can retain discretionary service and non-cash tips without compromising the NI status of the tronc – only the sums passed to the troncmaster constitute the tronc;
• any amount of tronc paid in excess of tips specified in the employee’s contract of employment does not incur a NI liability; and
• the National Minimum Wage (NMW) is confirmed as not being a contractual obligation for the purposes of NI contributions and if tronc money is independently allocated and paid via the payroll, NI contributions will only be payable on the salary element of the pay. This allows payment of basic salaries below the NMW.

HMRC do not accept that tronc money paid independently of the payroll can be counted towards the NMW.

Employers now, it appears, have little incentive to operate their troncs outside the payroll system.