This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

National Insurance Manual

Tips, gratuities and service charges: Tronc arrangements: Employer withholds payments from a tronc

Employer withholds payments from a tronc

Some employers do not pass on all amounts of tips, gratuities and service charges paidby customers. They may withhold amounts, for example to pay for credit card charges.Although an employer may choose to retain some of the amounts paid by customers, this doesnot mean that the employer has allocated the payments, (see NIM02922for meaning of allocate). It is for an employer to decide whether to pass on gratuitiesand if so how much.



Frank owns a pub and restaurant. Tips paid by cheque, debit and credit card are all passed to Sharon, the troncmaster, who has been appointed by Frank. Frank chooses to retain some of the tips received by cheque or debit/credit card, for example, in order to cover commissions and expenses. Sharon operates PAYE on the tips that she distributes. A staff committee decides on the allocation and Frank has nothing to do with this.


Frank is affecting the overall amount available for allocation. But he does not determine who should receive the tips and how much each employee should receive. He does not directly or indirectly allocate the tips. Sharon allocates the tips according to rules determined by the staff committee. No NICs are therefore due on the tips distributed by the tronc.

Published view before June 2005

HMRC’s view was that where employers withheld part of sums paid by customers theywere influencing or determining the amounts to be allocated to employees and thereforecondition 2 (NIM02922) of the gratuity disregard could not besatisfied.

Published view from June 2005

After considering legal opinion HMRC changed its view and published revised guidance inthe 2005 version of booklet E24. Employers who withhold sums from the tronc could stillsatisfy condition 2 of the gratuity disregard if they were not directly or indirectlyallocating the payments.

Effect of change of view

IR’s and HMRC’s views are changes to our interpretation of existinglegislation following consideration of legal opinion. The gratuities disregard (NIM02905) has not been amended. Where NICs have been paid in errorbecause the contributor has followed the available published guidance they may be entitledto a refund of those NICs. When guidance was revised in June 2005 procedures were put inplace to allow those who paid NICs in error to claim refunds.