It has taken me months to get round to writing this as we’ve been having a massive back and forth with HMRC, to the point where we’ve had to go and get specialist tax advice.
The new legislation, whilst it seems ace in principle, (more money for your team, and more transparency) it’s actually a colossal, logistical nightmare to do this tax efficiently.
Before we get into it, here’s a quick recap on what “tronc” means:
Completely irrelevant, but the word tronc comes from the French phrase “tronc des pauvres” which translates to collection box/ poor box (the word for word translation is “trunk of the poor”, but this doesn’t have the same ring to it).
Tronc in the financial sense means to pool tips, gratuities, and service charges together to later be divided out amongst staff. The method of division can vary, but it needs to be fair and transparent. The most common methods of division are:
Dividing total tronc by the number of hours worked in a period and multiplying it by the hours worked per person to arrive at the amount of tronc that person will receive,
Dividing total tronc using a points-based system based on seniority or tenure e.g. KPs and glass collectors are assigned 1 point each, the shift supervisor is assigned 1.2 points, and the head chef is assigned 1.5 points. The total tronc is divided by the total number of points, and then multiplied by the points per person to arrive at the amount of tronc that person will receive,
Dividing tronc out on a “per shift basis” e.g. 5 people work on Monday. £100 of tips, service charges, and gratuities are given over the course of the day. £100 divided by 5 people equals £20 each. This process is repeated each day.
In case you’re not aware, the main points of the new legislation:
1. You’ve got to have a tipping & tronc policy in place
2. Staff receive 100% of tips, gratuities, and service charge
3. Agency, freelance, and temporary workers are entitled to a share of the tronc via the same method that is applied in your tipping & tronc policy
4. Tronc must be distributed no later than the end of the month after which it was received from the customer
5. You’ve got to keep a record of who has received what, and make it available to your team upon request
6. Tronc CAN be exempt from Employee and Employer National Insurance Contributions.
However, that’s where the simplicity stops.
There are two main ways of running a tronc scheme- internally and externally. If you are running payroll yourself, then this will be internal. If you're outsourcing your payroll to a 3rd party i.e. an accountant or bookkeeper, then this will be external.
Internal
In order to run a tronc scheme (all tips, gratuities, and service charge is pooled together and distributed in a fair and transparent manner between staff), you have to have a troncmaster. A troncmaster can be either an employee, or a 3rd party. It can’t be an owner or director of the business. If it’s an employee, they have to agree to this.
You as the employer, then need to ring the HMRC Employer Helpline and let them know who the troncmaster is so that HMRC can set up a new PAYE scheme for YOUR business under the troncmaster’s name.
The troncmaster is responsible for ensuring that the tronc is distributed correctly, the correct amount of tax is deducted, and that this new payroll is reported to HMRC (in the same way that your current payroll is submitted to them) every pay date, which means needing payroll software. If something goes wrong, they make several mistakes, or they don’t report the tronc and the deductions correctly to HMRC, then the troncmaster can be held liable by HMRC.
Imagine that! You’re a small business with a handful of staff, and the only person willing to step up as a troncmaster is poor 18-year-old Joe. How are they going to manage that level of responsibility? I’m not knocking young people, but this is a huge responsibility that can lead to an even bigger liability for them.
What happens when Joe leaves? Well, you as the employer are then responsible for informing HMRC that they’ve gone, and for giving them the name of the new troncmaster so that another PAYE scheme can be set up AGAIN and the old one closed down*
HMRC weren’t too sure on this one, and they weren’t sure if the named troncmaster that was responsible for the PAYE scheme could be changed to someone else. They couldn’t really wrap their head around the high turnover of the industry. Their advice was to use a “head waiter” or “head chef”- someone who is less likely to leave. Lol. **** estimate that the turnover rate in hospitality is **%, and that people change employer on average every 9 months. Imagine dicking about with this every year?
External
The 2nd option is to get a 3rd party who understands payroll to act as troncmaster, but that obviously costs money. If you use a 3rd party to run your payroll, you can ask them to also look after your tronc scheme. Provided that your payroll provider agrees to take on the responsibility of troncmaster, they will be able to run the tronc through the existing payroll scheme so long as tronc is displayed on a separate line to other earnings and they are responsible for the allocation of tronc. Yes, this will create an additional admin burden for your payroll provider, and an additional cost to you, but it should be significantly safer than having this system carried out in house, and more cost effective than having a troncmaster company do the allocation for you.
You could also use the services of a dedicated troncmaster to calculate the apportionment of tronc and then liaise with your payroll provider to ensure that tronc is correctly, and fairly allocated to each member of staff. This option may be considered to be overkill for most employers when compared with asking your payroll provider to carry out this service for you.
There is a 3rd option though:
Keep running everything yourself, without a troncmaster, through the same PAYE scheme and on the same payroll, and just pay the additional employee and employer NI and pension contributions that go along with it. If you’re a relatively small business with one or two employees, is may be more cost efficient to take the hit on NI, or to stop taking card tips altogether and let your team deal with their own cash tips and reporting to HMRC.
So, to sum it up, here’s what you need to know if you're running payroll internally:
1. You need to establish a fair and transparent tipping policy.
2. You need to appoint a troncmaster. This can be:
a. A willing and responsible member of staff
b. A 3rd party
c. It cannot be a director or principal of the company
3. You need to call HMRC to let them know who that troncmaster is so that they can set up a separate PAYE scheme for handling tronc. Several troncmaster companies state that tronc can be operated under the same PAYE scheme as regular payroll- this is correct, but only if tronc is handled by an impartial party.
4. The troncmaster needs to:
a. Keep clear records of the tronc calculations
b. Keep clear records of the tronc distributions
c. Be responsible for making RTI submissions to HMRC through the new PAYE scheme via computerised payroll software (if a separate scheme is required)
d. Send you a list of payments that you need to make to both the staff receiving tronc, and to HMRC
5. You can still make the payments to your staff, and you don’t need to grant anyone else bank access
6. If a member of staff is to be the troncmaster, then you’ll need to notify HMRC as soon as they leave so that the tronc PAYE scheme can be closed, a new troncmaster appointed, and a new PAYE scheme set back up under the new troncmaster’s name.
For more information, and for verification on the above, please see HMRC’s Guidance on tips, gratuities, service charges and troncs, paying particular attention to section 6.
As you can see from above, it's back asswards, and there's plenty that could go wrong. If you're already a client of ours and we're currently operating your payroll scheme, here's what you need to do:
Send us your tips & tronc policy so that we can understand how tronc is to be allocated.
Provide us with each pay period's total tronc figure, or the tips & tronc for each day if you're splitting it out on a daily basis.
Send us the hours worked as standard for that period, but also include anyone else who is not on payroll such as freelancers and agency workers.
We'll calculate the allocation, and add these amounts to your employees' payslips. We'll send you over details of what needs paying to who, and we'll include any tronc that needs paying to those that aren't on your payroll.
Alternatively, click here, book in, and let’s have a rant.
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