What a tronc scheme actually is, and why restaurants use one
A tronc is a separate pot for tips, service charge and gratuities that is shared out by a troncmaster rather than by the business. It sits alongside your normal payroll, not inside it. The reason restaurants bother is simple: when the troncmaster decides the split and the employer keeps out of it, those tips reach staff without National Insurance, which no ordinary wage can do.
The word tronc is old hospitality shorthand, but the tax treatment behind it is specific. HMRC will treat tip payments as free of National Insurance only where the money is not paid or allocated by the employer. Hand the decision to an independent troncmaster and the exemption holds. Keep a hand in who gets what, even informally, and it does not. That single distinction is what the rest of this guide turns on, and it is where most restaurants that think they have a tronc actually trip up.
This guide is written by LOYALS, a King's Cross firm of accountants and business consultants that sets up and runs tronc schemes, hospitality payroll and accounting for restaurants across London, so the framing throughout is the decision an owner has to make on a Monday, not the textbook version.
How much does a tronc actually save your restaurant?
The saving is 15 percent of your tip pot in employer National Insurance, every year. Employer secondary National Insurance runs at 15 percent for 2026 to 2027 on earnings above the 5,000 pound secondary threshold, which your ordinary wage bill has already used up, so in practice every pound of tips put through a normal payslip is taxed at the full 15 percent. Put the same pound through a compliant tronc and that charge disappears. The rate and threshold are set out in HMRC's rates and thresholds for employers for 2026 to 2027.
Take a mid-sized London restaurant with 80,000 pounds of card tips a year shared across front and back of house. Run through main payroll, those tips cost the business about 12,000 pounds in employer National Insurance a year. Run through a compliant tronc, the employer cost is nil, so the whole 12,000 pounds stays in the business. Staff gain too, because they avoid 8 percent primary National Insurance on their share within the main band, so the same tip is worth more in their pocket.
Income tax is the part owners sometimes expect to save and cannot. A tronc removes National Insurance only, never income tax, so staff still pay tax on their tips exactly as they would on wages. What changes is the National Insurance, on both sides, and on a tip pot of any real size that is a number worth protecting rather than giving away.
When are tronc payments free of National Insurance?
Two things have to be true at once. First, the tips must not be paid or allocated to staff by the employer, directly or indirectly. Second, an independent troncmaster must be the one deciding who receives what. HMRC's E24 guidance on tips, gratuities, service charges and troncs sets out both conditions, and both have to hold for the National Insurance to drop away.
The word doing the heavy lifting is allocate, and HMRC is blunt about what it means: deciding who gets what amount. If the business makes that call, the exemption is gone, even where the day-to-day job of paying it out is handed to a trusted member of staff. A manager who quietly sets the percentages, an owner who signs off the split each week, a rota that the business controls and that drives the shares, each of these is the employer allocating, and each brings the full 15 percent employer charge back along with the staff National Insurance.
Here is where LOYALS lands for most restaurants. Once your card tips are material, a properly run tronc almost always pays for itself several times over, so the question is not whether to have one but whether you can appoint a genuinely independent troncmaster. That condition is the hinge: without real independence the exemption fails whatever your tip pot looks like, and you are better off not pretending you have a tronc at all. Where exactly the current rules land on tips and holiday pay is still settling, so we treat that corner cautiously and keep the policy flexible until it beds in.
Who can be your troncmaster?
A troncmaster can be an employee or an outside party, but they must decide the allocation independently of the business. That independence is the whole point of the role. An owner or a manager cannot do it and keep the exemption, because the employer deciding the split is exactly what the rules disallow. A trusted employee is allowed, yet it is the riskier route, since any steer from the business over the amounts quietly loses the National Insurance treatment.
In practice most restaurants hand the running of the tronc to their accountant, which keeps the allocation at arm's length from the business and takes the PAYE and record-keeping off the floor manager's plate. HMRC's National Insurance Manual on appointing a troncmaster is worth reading before you hand the job to anyone, because getting the appointment wrong undoes the saving for every week it runs.
How do you set up a compliant tronc scheme?
Setting one up is methodical rather than hard, and the order matters. Each step protects the National Insurance treatment, so skipping one tends to be where a tronc quietly stops qualifying.
- Appoint an independent troncmaster. Name who decides the allocation, and make sure it is not the owner or anyone who reports into management on this task. This is the step everything else depends on.
- Write a tipping policy. Put in writing how tips are collected, how they are shared, and over what period, so the arrangement is transparent and the allocation rules are clear.
- Open a separate tronc bank account. Keep tronc money apart from business money so there is a clean trail from till to staff and no question of the funds mixing with trading cash.
- Agree fair allocation criteria. Hours, role, section, a points system, whatever fits your floor, set and run by the troncmaster rather than the business.
- Register a separate tronc PAYE scheme with HMRC. Tips still bear income tax, so a PAYE scheme is set up in the troncmaster's name and tax is deducted before the money reaches staff.
- Keep the records. Hold the tipping policy, the allocation each period and the payroll line together, so you can show a worker or HMRC exactly how a given tip was shared.
The one that catches people is the fifth. A tronc does not escape income tax, and the troncmaster is personally on the hook for operating that PAYE correctly, which is the main reason the role so often sits with the accountant rather than a member of staff who has a shift to run. If you want this handled end to end, our payroll and PAYE service runs the tronc PAYE alongside your main payroll.
What does the Employment (Allocation of Tips) Act 2023 require?
Since 1 October 2024 the law requires you to pass on 100 percent of tips to workers with no deductions except tax, share them fairly and transparently, keep a written tipping policy available to staff, hold records of what was paid and how it was allocated, and get the tips to people by the end of the month after the month they were received. The duties and the statutory Code of Practice on fair and transparent distribution of tips came into force on that date, and the underlying Employment (Allocation of Tips) Act 2023 gives them teeth.
A properly run tronc fits these duties rather than fighting them. The written policy the Act wants is the same policy your tronc needs, the records overlap, and the end of following month deadline is simply how a tronc already pays out. The rules also reach agency and zero hours staff working your floor, so a fair allocation has to think about everyone on shift, not only your directly employed team. Treating the Act and the tronc as one project, rather than two, is how most restaurants get both right with the least friction.
Five mistakes that collapse a tronc
Almost every tronc that fails an HMRC look does so for one of a handful of reasons, and all of them are avoidable.
The owner or a manager acts as troncmaster
This is the big one. The moment the business decides the split, the National Insurance exemption is gone, however the payments are physically made. Delegating the paying out to a trusted employee does not rescue it if the business still sets the shares.
Tips run through the main PAYE scheme
Put tips through your ordinary payroll and you have told HMRC they are earnings from the employer. A tronc needs its own PAYE scheme in the troncmaster's name, kept separate from the main one.
No written tipping policy
Without a policy there is nothing to show how tips are shared, which fails both the tronc test and the Tips Act duty. A short, clear written policy covers both at once.
Opaque or inconsistent distribution
If staff cannot see how their share is worked out, or the method changes week to week at the owner's whim, the arrangement looks like the employer allocating. Consistency run by the troncmaster is what keeps it clean.
Records that do not add up
If you cannot reconcile the tips collected, the allocation and the payroll line, you cannot defend the scheme. Keep the three together each period. One further grey area worth watching is how tips interact with holiday pay, which is still settling, so build the policy to flex as that beds in rather than hard-coding a treatment you may have to unpick.