How Do Tronc Schemes Work? Tipping Rules and Tax Explained.

Why should hospitality businesses review their tipping arrangements?

For many hospitality businesses, tips are a regular part of day-to-day operations. Customers may leave cash on the table, add a gratuity to their card payment or pay a service charge with their bill.

However, collecting tips is only one part of the process. Employers also need to understand how those payments should be distributed, recorded and treated for tax purposes.

A properly operated tronc scheme can help businesses manage these responsibilities. It may also provide National Insurance advantages where the relevant conditions are satisfied.

Meanwhile, the Government is consulting on revisions to the statutory Code of Practice governing the fair and transparent distribution of tips.

The consultation provides a timely reason for hospitality employers to review their current arrangements, particularly where tips are collected and distributed through the business.

What is a tronc scheme?

A tronc is a special pay arrangement used to distribute tips, gratuities and service charges among employees.

Rather than every employee keeping only the tips they personally receive, some or all of the money can be collected into a central fund and shared according to an established allocation system.

For example, a restaurant might use a tronc scheme to distribute tips among waiting staff, bartenders and kitchen employees.

This allows the business to recognise the contribution of different members of the team, including employees who help deliver the customer experience without directly serving customers.

How does a tronc scheme work in practice?

The precise arrangements will depend on the business, the types of tips received and the agreed method of distribution.

However, a typical tronc scheme operates through the following process.

1. Tips are collected.
   Customers leave eligible tips through card payments, cash or other payment methods. The amounts included in the tronc are identified and recorded.
2. Tips enter the tronc fund.
   The relevant amounts are pooled for distribution among eligible workers. Records should identify the source and amount of the funds.
3. The troncmaster allocates payments.
   The troncmaster, or an appropriate tronc committee, manages the allocation system. A genuinely independent arrangement is particularly important where National Insurance exemption is being considered.
4. Tax is accounted for.
   Where a separate tronc PAYE scheme is required, the troncmaster operates payroll, deducts the appropriate Income Tax and reports the relevant payments to HMRC.
5. Employees receive their allocated tips.
   Payments are distributed, and the relevant records are maintained to support the business’s tipping policy and payroll obligations.

Importantly, a tronc scheme must operate consistently with the legal requirements for fair and transparent distribution. An independent allocation system does not remove the employer’s obligations under tipping legislation.

Who can act as the troncmaster?

The troncmaster is the person responsible for organising and administering the distribution of tips through the tronc.

This might be an employee appointed to administer the arrangement or another appropriate person who is not acting on the employer’s behalf when deciding tip allocations.

HMRC does not prescribe one particular method for appointing a troncmaster. However, the individual’s role and the employer’s actual involvement can affect whether payments qualify for National Insurance exemption.

For example, appointing a company director who influences how the business is run may indicate that the employer is indirectly controlling the allocation of tips.

Do employees pay tax on tronc payments?

Yes. Tips are generally subject to Income Tax, including payments received through a tronc scheme.

Where a separate tronc PAYE scheme is established, the troncmaster is responsible for operating PAYE on the payments made from that tronc.

The employer must tell HMRC about the tronc arrangement and identify the person responsible for administering it. HMRC can then establish the appropriate separate PAYE scheme.

This arrangement allows the relevant Income Tax to be deducted and reported through the tronc payroll.

For more information, see HMRC’s guidance on operating a tronc PAYE scheme.

Do you pay National Insurance on tronc payments?

Not necessarily. The National Insurance treatment depends on the type of payment, how it is made and who decides how the money is allocated.

Qualifying voluntary tips may be exempt from employer and employee National Insurance contributions where the relevant conditions are met.

For example, where an independent troncmaster decides how eligible voluntary tips are shared, without employer control over the allocation, the payments may qualify for exemption.

However, where the employer directly or indirectly determines how tips are distributed, National Insurance will generally be due on payments made from tips received through the business.

The arrangements must satisfy HMRC’s conditions in practice, not simply on paper.

You can read the detailed rules in HMRC’s guidance on tips, gratuities, service charges and troncs.

Is there a difference between tips and service charges?

Yes. The distinction between a voluntary payment and a mandatory charge is important when considering the correct tax and National Insurance treatment.

For example, adding a compulsory service charge to a restaurant bill does not create the same National Insurance position as a customer voluntarily leaving a tip.

Employers should therefore review how service charges are described to customers and how the resulting payments are processed.

Example: How might a tronc affect a restaurant’s payroll?

Consider a restaurant that collects voluntary tips through customer card payments.

The restaurant wants to share those tips between its waiting staff, kitchen team and other eligible employees.

This is a simplified illustration. The actual treatment depends on the full circumstances, including the source of the payments and the way the arrangements operate.

For a hospitality business, reviewing these arrangements can help identify whether its existing payroll treatment is appropriate.

What are the current UK tipping rules for employers?

The Employment (Allocation of Tips) Act 2023 introduced new requirements that took effect on 1 October 2024.

These rules are intended to ensure that qualifying tips are distributed fairly and transparently between workers.

They apply to qualifying tips received by employers and certain tips received by workers where the employer exercises control or significant influence over their distribution.

Employers must pass on qualifying tips

Qualifying tips must be passed on to workers without deductions other than those permitted by law, such as applicable Income Tax.

Employers must also ensure that tips are allocated fairly between the relevant workers.

Businesses must maintain an appropriate tipping policy

Employers that receive qualifying tips on more than an occasional and exceptional basis must maintain a written tipping policy and make it available to workers.

The policy should explain how tips are collected and allocated, helping workers understand the arrangements in place.

Employers must keep appropriate records

Businesses must maintain records of qualifying tips received and how those tips are allocated.

The relevant tipping records must be retained for three years, and workers have statutory rights to request specified information about their tips.

The existing requirements are explained in the Government’s statutory Code of Practice on distributing tips fairly.

What changes to UK tipping rules are being proposed in 2026?

On 19 August 2026, the Government launched a consultation on a revised statutory Code of Practice covering the fair and transparent distribution of tips.

The revised guidance follows the Employment Rights Act 2025, which provides for new requirements concerning consultation with workers when employers develop or review their written tipping policies.

The proposals are intended to provide further guidance on how businesses should involve workers in these decisions.

Greater involvement of workers

Under the proposed changes, employers would need to consult workers when developing or revising their written tipping policies.

The revised Code provides guidance on taking a proportionate approach, engaging appropriate groups of workers and maintaining records of consultation.

Further guidance on fair distribution

The draft Code also addresses how employers should consider fairness across their tipping arrangements.

This includes guidance on the workers involved in providing a service, the factors used when allocating tips and the fairness of the scheme as a whole.

It also discourages arrangements that guarantee fixed tip allocations to particular workers and addresses the importance of equal pay considerations.

The consultation is scheduled to close on 29 September 2026.

You can read the proposals and find information about responding through the Government’s consultation on the revised tipping Code of Practice.

Will the proposed changes affect existing tronc schemes?

Businesses operating tronc schemes should consider whether their current tipping policies and allocation arrangements remain consistent with the applicable requirements.

The proposed consultation requirements concern how employers involve workers when developing and reviewing their tipping policies.

However, employers must also consider the separate rules governing Income Tax and National Insurance.

Consulting workers about a tipping policy does not automatically mean that the employer must control individual allocations of tips.

Equally, a business should not assume that an existing tronc arrangement is fully compliant simply because it operates a separate payroll.

Can employers use tips to make up the minimum wage?

No. Tips, gratuities and service charges do not count towards National Minimum Wage pay.

Employers must pay workers at least the applicable statutory minimum wage, independently of any tips they receive.

This applies whether tips are paid directly to employees, through the employer’s payroll or through a tronc scheme.

For more information, see the Government’s guidance on calculating the National Minimum Wage.

Five checks hospitality employers should make now.

Whether your business already operates a tronc scheme or distributes tips directly through payroll, reviewing the following areas can help identify where changes may be needed.

1. Review your existing tipping policy.
   Check that your written policy accurately explains how tips are collected, allocated and distributed. Make sure workers can access the policy and understand the arrangements in place.
2. Identify who controls tip allocations.
   Establish who actually decides how much each employee receives. If your business operates a tronc and relies on National Insurance exemption, review whether the arrangements satisfy HMRC’s requirements.
3. Check the tax treatment of different payments.
   Review how cash tips, card tips, voluntary service charges and mandatory service charges are processed. Confirm that Income Tax and National Insurance are accounted for correctly.
4. Review your tipping records.
   Make sure your business maintains the records required under the applicable tipping legislation. These should support your tipping policy and demonstrate how qualifying tips have been distributed.
5. Prepare for proposed changes.
   Consider how you would involve workers when developing or reviewing your tipping policy. Follow the consultation and subsequent Government announcements before implementing changes based on the revised Code.

Good financial records can also help businesses identify payroll issues before they become more difficult to resolve.

Our bookkeeping support can help businesses maintain organised and reliable financial information.

Final thoughts: Getting your tipping arrangements right.

For hospitality businesses, managing tips involves more than simply collecting money and passing it on to employees.

A properly operated tronc scheme can help businesses organise tip distribution and apply the correct tax treatment.

Where the relevant conditions are met, qualifying payments may also be exempt from employee and employer National Insurance.

However, employers must also ensure that their tipping arrangements comply with the applicable rules on fairness, transparency and record-keeping.

With further changes being proposed, reviewing your arrangements now can help you understand what your business currently does and where attention may be needed.