Tronc Schemes and Tips Tax 2026/27: Why Some Tips Are NI-Free and Some Aren't

A tronc is an arrangement for pooling and distributing tips, gratuities and service charges among staff (typically in hospitality — restaurants, hotels, bars), run by an independent 'troncmaster' who decides the distribution basis rather than the employer directly allocating the money. Troncs have a specific, favourable National Insurance treatment when set up correctly.

Tips distributed via a genuinely independent tronc — where the troncmaster, not the employer, decides how much each staff member receives — are not treated as earnings from the employment for National Insurance purposes, so neither employee nor employer National Insurance is due on the tronc payments, even though Income Tax is still payable.

Yes. The National Insurance exemption applies specifically to tronc-distributed tips; Income Tax is still due on the full amount received, usually collected through PAYE if the troncmaster registers the tronc for payroll purposes, or otherwise reported and taxed via the employee's tax code or Self Assessment.

If the employer directly controls the distribution of tips (rather than a genuinely independent troncmaster making that decision), the National Insurance exemption is lost, and the tips are treated as normal earnings subject to both employee and employer National Insurance, in addition to Income Tax.

The Act, which came into force in October 2024, requires employers to pass on all tips, gratuities and service charges to workers in full — without deductions beyond those required by tax law — and to do so fairly and transparently, generally by the end of the month following the month the tip was paid. It also introduced a statutory Code of Practice on fair tip distribution that employers must have regard to.

No — the Employment (Allocation of Tips) Act 2023 is primarily about ensuring workers receive tips fairly and in full; it doesn't change the underlying National Insurance treatment of independently-run troncs, which continues to depend on the troncmaster genuinely and independently deciding the distribution, as it did before the Act.

Cash tips given directly to an individual worker by a customer, which the employer has no involvement in collecting or distributing, are generally outside PAYE and NI altogether at the point of payment, but are still taxable income that the worker is legally required to declare to HMRC, typically via Self Assessment or by having their tax code adjusted.

Workers can ask their employer or troncmaster directly, and should look for evidence that tip distribution decisions and amounts are being made independently of management — payslips showing a separate 'tronc' or 'gratuities' line, with no employee National Insurance deducted on that specific amount, are a common practical indicator.

Yes. Discretionary service charges added to a bill can be pooled and distributed through a tronc in the same way as cash and card tips, provided the arrangement meets the same independence test — genuinely decided by the troncmaster rather than dictated by the employer — to retain the National Insurance exemption.

For a worker receiving, say, £3,000 a year in tips through a properly run tronc, the National Insurance exemption saves them 8% employee NI (around £240) that they would otherwise pay if the same money were treated as ordinary wages, plus it saves the employer 15% employer NI on that amount, which is one reason well-run tronc schemes remain popular in hospitality despite the compliance overhead of maintaining genuine troncmaster independence.