PAYE20160 - Employer records: set up employer record: TRONC scheme - scheme set up for distribution of tips and gratuities

An employer record with a TRONC scheme type should be set up where

  • A separate (from the principal employer) organised arrangement exists to distribute tips, gratuities and / or service charges to employees
  • A troncmaster accepts and undertakes the duties of collection, custody and distribution of the tips and so on

Where employees retain cash tips handed to them directly by or left on the table by customers there are no PAYE or NIC implications. The responsible PAYE office should seek to adjust the employees' PAYE codes where they are aware of these circumstances.

The remainder of this subject is presented as follows

Does a tronc exist?
National Insurance
Failure to operate PAYE
Cases of difficulty

Does a tronc exist?

To enable you to accept that a tronc exists for tax purposes there must be evidence that there is an organised arrangement and a person who accepts that they are the troncmaster.

Ascertain the following

  • How monies are received by the tronc
    • Do employees pay cash tips in
    • Does the employer hand over tips etc included in cheque or card payments
    • Does the employer hand over service charges
  • Who keeps the monies before distribution
  • Where the money is kept
  • The basis of distribution and who decides it

Note: The basis of distribution, that is who should receive what, may vary.

Often the troncmaster decides the basis of distribution as well as making the payments to the tronc members. Sometimes the basis of distribution relates to a points system for the job or seniority. For example, a head waiter who is senior and / or entitled to more points than a junior waiter may receive a larger share.

In other cases tips and / or service charges are shared equally by all of the tronc members. The principal employer may be involved in deciding the basis of the distribution but not in the actual distribution itself.

  • How often the monies are shared
  • The extent of the principal employer's involvement (Word 25KB) if any
  • Which staff are covered by the tronc
  • Whether the staff are aware of the tronc and the troncmaster
  • Whether the person identified as the troncmaster accepts and understands the position

If there is any doubt about the existence of a tronc for tax purposes or a person accepting the role of troncmaster you must maintain that PAYE responsibility for tips and so on remains with the employer for amounts which pass through their hands.

A tronc may still be valid for tax purposes even though

  • It only deals with tips and so on handed over by the employer which were amounts given as part of cheque or card payment
  • It only deals with any share of service charges handed to the tronc by the employer
  • The employer may fund the tronc in whole or in part
  • The employer may have decided, or been involved in setting, the basis of distribution but once the arrangement is set up the employer must not be involved in the process of distribution to tronc members

Different occupational groups with the same principal employer may have different troncs (for example, a hotel may have one system for porters and another for restaurant staff).

Where the obligation lies with the employer to operate PAYE on tips, gratuities or service charges this obligation remains with the employer even if a tronc exists or the actual work of distributing the tips and so on is delegated to an employee.

Where you establish that a tronc exists for tax purposes

  • Follow PAYE20161 
  • Arrange for a member of the Business Support Team (BST) to
    • Visit the troncmaster
    • Explain their responsibilities under the PAYE regulations
    • Supply the necessary forms and tables

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National Insurance

Guidance on National Insurance in relation to troncs is contained within

  • Booklet CWG2 - 'Employer Further Guide to PAYE and NICs'

And

  • The National Insurance Manual (NIM)

Class 1 National Insurance contributions are not payable on payments by troncmasters in the following circumstances

  • Where tips and so on are paid to someone other than the employer, for example directly to staff, into a staff box or to someone else such as the troncmaster, and provided that the employer does not handle the money or decide or influence how the money is shared out
  • Where the employer simply pays over to the tronc for distribution a voluntary service charge (one that the customer is not obliged to pay) and the employer has no influence on how the tronc distributes the money

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Failure to operate PAYE

Failure to operate PAYE in relation to tips and so on should be settled with the employer or troncmaster as appropriate by

  • Additional return
  • Regulation 80

Or

  • Class 6 settlement

If significant amounts of tax / NIC have been lost for earlier years you must consult your Compliance Officer before taking any action as employers and troncmasters will often blame each other for the failure.

Where a troncmaster has failed to comply with their PAYE obligations HMRC may direct the employer to operate PAYE on future distributions even if the troncmaster handles distribution. If you consider that a direction is appropriate refer the case to Personal Tax Customer, Product & Process, PAYE Technical, Shipley at the address below. Where the troncmaster's PAYE failure is in respect of payments not passed to the tronc by the employer and a direction is considered appropriate the PAYE section must consult with the employees and / or their representatives before making any coding restrictions to

  • Establish the correct level of tips

And

  • Forewarn them of the proposed coding restrictions so that they make any representations

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Cases of difficulty

Where you encounter cases of difficulty which cannot be resolved locally prepare a summary of the facts and seek advice from

Personal Tax Customer, Product & Process, PAYE Technical





(This text has been withheld because of exemptions in the Freedom of Information Act 2000)