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HMRC internal manual

National Insurance Manual

Tips, gratuities and service charges: income tax and pay as you earn

Section 62 of the Income Tax (Earnings and Pensions) Act 2003

Regulation 100 of the Income Tax (Pay as You Earn) Regulations 2003 (SI 2003 No. 2682)

There is no income tax equivalent of the NICs gratuity disregard. All tips, gratuities, and service charges fall within the definition of earnings in section 62 of ITEPA 2003. See EIM07900.

If an organised arrangement exists for tips to be shared among employees by a person who is not the principal employer, the principal employer must notify HMRC about the arrangement. When this is done a PAYE scheme may be set up for the arrangement (usually known as a tronc) for the purpose of operating PAYE on the tips. Where a ‘tronc’ PAYE scheme is opened the person held responsible for compliance with PAYE legislation is the person who shares out the tips (usually known as the ‘troncmaster’). This is relevant when trying to establish facts to determine whether condition 2 of the gratuity disregard applies (NIM02922). For more guidance about PAYE see PAYE72080.