You’ve heard that tips collected via a Tronc scheme incure PAYE but don’t incur national insurance, but how does a Tronc scheme work?
Check out our previous blog on how to record and pay out tips to your employees. Today’s blog goes into more detail on how Tronc schemes work.
The previous blog talks about the different treatment for tips, gratuities and service charges, but for this blog, we will refer to all 3 as tips.
What is a Tronc Scheme?
This is a scheme for collecting tips, gratuities and service charges from your customers, and sharing these out to your employees.
You should keep clear records of tips collected, and how these are shared out to your employees.
The business owner must not be involved in collecting or allocating tips, this must be managed by the Troncmaster.
Who is the Troncmaster?
This can be an employee or a third party, but it must not be the business owner.
The Troncmaster is responsible for arrangements to share tips amongst employees.
They must decide how tips are allocated, not the business owner.
If the business owner decides, and the Troncmaster is simply following their instructions, this means the business owner is still indirectly deciding on allocations of tips.
How are tips paid via a Tronc Scheme taxed?
If the Troncmaster is managing the scheme, and deciding how tips should be allocated, then the employee will incur PAYE tax on the tips.
There should be no National Insurance for the employee or employer if the scheme is managed correctly.
However, if the employer has decided on the method for allocating tips, the Troncmaster is following the employers’ instructions, so NIC would be chargeable in that case.
How do you report Tronc scheme tips to HMRC?
If you use the business’ existing bank account to collect tips and pay out to staff:
And you have appointed a Troncmaster to collect and allocate tips:
You don’t need a separate PAYE scheme, but tips should be included on the employees’ payslips, with PAYE deducted.
If you use a separate bank account, just for collecting and paying out tips:
You should report details of the scheme to HMRC, and set up a separate PAYE scheme.
What records do you need to keep for a Tronc scheme?
You should keep details of all tips collected, and ideally from which source.
For example, you could have cash tips, or tips received by card or cheque.
You could also have different types of tips, like mandatory service charges, so it would be useful for your reports to show the type of tip, and where it’s come from.
You should also keep records of how the tips have been shared amongst the employees.
The reports of how tips are shared should agree back to the amounts added to your employees’ payslips.
Do Kinder Pocock act as Troncmasters
We don’t provide this service, but recommend engaging the services of a specialist Tronc service provider.
This works really well, as the Troncmaster provides reports of tips to be added to the payrolls that we operate for our own clients.
Get in touch if we can support you with your payroll, or other finance needs.