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.

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

• Who keeps the monies before distribution
• Where the money is kept
• The basis of distribution and who decides it
• How often the monies are shared
• The extent of the principal employer's involvement, 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

National Insurance

Guidance on National Insurance in relation to troncs is contained within

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

And

• NI Manual at NIM02390

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

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 PSN 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

Cases of difficulty

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

PSN PAYE Technical
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