Almost a year after National Insurance rules on the taxation of tips last changed, a further amendment to the rules have been announced by HM Customs and Excise.
In an announcement made on 17th February, the Revenue say that further legal advice received indicates that employers should not pay NICs on payments made to employees from employee administered troncs, even if entitlement to a share of the tronc was part of the employment contract.
This change will amend the booklet “E24 Tips, Gratuities, Service Charges and Troncs”, which has now been temporarily withdrawn. The relevant sections of booklets CWG (2005) and the 2006 version are now also obsolete, and “Expenses and benefits in kind, a guide to tax and NICs”, a publication only available on-line will be updated.
The taxation of troncs has become notoriously complicated over the years. Restaurant tips may be paid into a pool known as a “tronc”, this can be done by employees or the employer may also pay over any tips received via cheque or credit card. A troncmaster, who can be shown to be acting independently from the employer (i.e. not a director or senior manager), then administers the tronc and shares out the contents to employees. He also pays over tax deducted, as troncs must have PAYE schemes, and these are independent of the employers own scheme.
The troncmaster does not account for NICs. These are paid by the employers if the tronc rules are breached.
Alternatively, all the tips can be collected by the employer; they are then treated as earnings for NICs, as well as PAYE, and taxed via the payroll.
In February 2005, HMRC agreed that employers can deduct card handling charges or credit card charges from tips received from customers before passing on the balance to the tronc. It previously held the view that this amounted to employer interference with the tronc, and so would have made the entire tronc subject to NI.
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