Disclosure: This article is written by Shaun McManus, founder of SmartPubTools and creator of the Restaurant Console. All operational claims reflect genuine experience at Teal Farm Pub, Washington.
What Is a Tronc Scheme and Do UK Restaurants Have to Use One?
Key Takeaway: The Employment (Tips) Act 2023 came into force in October 2024. All tips — whether cash, card, or service charge — must now be passed to workers in full, without deduction. A HMRC-approved tronc scheme is the tax-efficient way to distribute those tips. Operators who are still retaining any portion of tips are in breach of the law.
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By Shaun McManus | Last Updated: May 2026
Many UK restaurant operators are still managing tips the way they did five years ago — and many are now unknowingly breaking the law. The Employment (Tips) Act 2023, which came into force on 1 October 2024, fundamentally changed the legal framework for tip distribution in hospitality. This guide explains what changed, what you must do now, and how a tronc scheme makes tip distribution tax-efficient and legally compliant.
The Employment (Tips) Act 2023 — What Changed in October 2024
Before October 2024, employers could legally retain a portion of card tips and service charge, or use them to top up wages to NMW level. That is no longer permitted.
The Employment (Tips) Act 2023 requires that: all qualifying tips are passed to workers in full (no deductions by the employer); tips must be distributed no later than the end of the month following the month in which they were received; employers must have a written tips policy and make it available to all workers; and records of tip distribution must be maintained and provided to workers on request.
Critical: tips do not count toward the National Minimum Wage. A worker receiving NMW of £12.21/hour cannot have their wages topped up with tip payments to reach that figure. Tips are in addition to NMW, not part of it. See the restaurant labour cost guide and restaurant payroll guide for the full NMW requirements for 2026.
What Is a Tronc Scheme?
A tronc is a formal arrangement for pooling and distributing tips and service charge among employees. It is managed by an independent Troncmaster (who can be an employee but must act independently of the employer). Tips paid through an HMRC-approved tronc are exempt from employer National Insurance contributions — saving the employer typically 13.8-15% on the distributed amounts.
Employees pay income tax on tronc payments via PAYE (the Troncmaster runs a separate PAYE scheme) but no employee National Insurance is payable on tronc distributions — saving employees typically 8-12% compared to receiving the same amount as wages.
Tronc vs Direct Distribution — The Tax Difference
| Method | Employer NI | Employee NI | Income tax | Net to employee on £100 tip pool |
|---|---|---|---|---|
| Via wages (no tronc) | Yes — 15% | Yes — 8% | Yes — 20% basic rate | ~£72 (after employee NI and tax) |
| Via HMRC-approved tronc | No | No | Yes — 20% basic rate | ~£80 (tax only, no NI deduction) |
On a tip pool of £50,000/year, an approved tronc saves the employer approximately £7,500 in employer NI and delivers approximately £4,000 more to employees than direct wage distribution. A tronc pays for itself immediately at any meaningful tip volume.
Service Charge — Discretionary vs Mandatory
Discretionary service charge (where the customer can choose to remove it) must now be passed to workers in full under the Employment (Tips) Act 2023. Mandatory service charge (where it is non-negotiable and clearly stated as a business charge, not a tip) may be treated differently — but operators should take legal advice on their specific wording, as HMRC scrutinises mandatory service charge arrangements carefully.
For most independent restaurants with 12.5% discretionary service charge: this amount must now flow to workers in full, either directly or via a tronc scheme. If you have historically retained any portion to cover card processing fees or admin, that must stop.
How to Set Up a Tronc Scheme — Steps
Step 1 — Appoint a Troncmaster. This must be someone independent of the employer’s wage decision-making — typically a senior employee, not the owner or HR manager. The Troncmaster is personally liable for PAYE compliance on tronc distributions.
Step 2 — Register a separate PAYE scheme. The Troncmaster registers a separate PAYE scheme with HMRC specifically for tronc payments. This is distinct from the employer’s PAYE scheme.
Step 3 — Write the distribution policy. The tronc rules must specify how tips are allocated — by points system, by hours worked, by role, or a combination. Under the Employment (Tips) Act 2023, the policy must be fair and transparent.
Step 4 — Communicate to all staff. All workers must receive a copy of the tips policy. Records of distribution must be available to any worker on request within 4 weeks of asking.
Step 5 — Distribute and report monthly. Distribute tips by end of the month following receipt. Report via the Troncmaster’s PAYE scheme. Maintain records.
Tips, Labour Cost and Your Weekly P&L
Tronc distributions do not appear in your wage bill (they run through the Troncmaster’s separate PAYE scheme), so they do not inflate your labour cost% directly. However, the tip pool is funded by your revenue — if your service charge is 12.5% of net revenue and that flows to staff, it effectively reduces your net revenue available for other costs. Model this correctly in your weekly P&L.
The restaurant staff rota guide covers shift-by-shift labour cost tracking. The Restaurant Console Staff module logs all shift data needed to calculate per-worker tronc entitlements based on hours worked.
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Frequently Asked Questions
What is the Employment (Tips) Act 2023?
In force from 1 October 2024. All tips must be passed to workers in full — no employer deduction permitted. Written tips policy required. Distribution by end of following month. Records available to workers on request.
Do tips count toward National Minimum Wage UK?
No. Tips do not count toward NMW. Workers must receive £12.21/hour (April 2026) in base pay — tips are additional. Using tips to top up wages to NMW is illegal.
How much NI does a tronc scheme save?
An HMRC-approved tronc is exempt from employer NI (15%) and employee NI (8%). On a £50,000/year tip pool: employer saves ~£7,500, employees receive ~£4,000 more than via direct wages.
Can a restaurant keep service charge under the 2024 tips law?
No — discretionary service charge must be passed to workers in full. Mandatory service charge may differ — take specific legal advice as HMRC scrutinises these arrangements.
When must tips be paid to staff under UK law?
By the end of the calendar month following the month of receipt. Tips received in January must be distributed by end of February. Hard deadline under the Employment (Tips) Act 2023.
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