Tronc Schemes, also known as ‘troncs’ are used by businesses operating in the hospitality and leisure sector to distribute tips and gratuities given by customers to employees. Offering significant savings (particularly National Insurance Contributions (NIC)) to both employees and businesses, troncs are widely used as they can increase an employee’s take-home pay, with at no cost to the business.

The rules of tronc schemes are however complicated and we would recommend that specialist advice is sought in this area. The rules are ever changing and have changed substantially in recent years. HM Revenue & Customs (‘HMRC’) closely examines all tronc arrangements to ensure that they fully meet the terms for exemption from NIC. If you have a tronc scheme in place it is essential that you ensure that they are up to date and legally compliant.

There are risks hospitality businesses face which they do not fully understand and are not always aware of, which can lead to demands from HMRC. These risks include pooling and sharing out cash tips, converting tips paid on card to cash from the till, and inadvertedly creating contractual arrangements for tips. As well as safeguarding against HMRC demands, properly run tronc schemes can help protect employers from claims at Employment Tribunals regarding tips.

How can WMT help?

Peter Davies of WMT Chartered Accountants is a leading adviser in this area.  He has worked (and continues to work) with all types of hospitality business from high street chains, 3 Michelin Star restaurants, leading hotels to smaller, independent businesses and owner-managed restaurants or food-led pubs.  He has also advised the British Hospitality Association (the leading trade body for the hospitality sector) and regularly contribute to the ongoing public debate on tips and troncs.

Our tronc arrangements are innovative and flexible and are not just used to save NIC, but also to help control wage costs and reward performance. We successfully defend businesses that are challenged by HMRC and proactively advise on a range of issues, including: -

• When is tax at source appropriate?
• What are the conditions for exemption from NIC?
• Can tips be used to pay the National Minimum Wage?
• How best to incentivise and reward employees;
• Staff recruitment, retention and contractual issues;
• Employment Tribunal claims involving tips/troncs;
• HMRC demands for NIC; and
• Reducing administration and legal obligations relating to the tronc.

 If you would like a free, no obligation discussion with us about any tronc issues, please contact Peter Davies on 01727 838255.