NIM02943 - 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 paid by 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 does not mean that the employer has allocated the payments, (see NIM02922 for meaning of allocate). It is for an employer to decide whether to pass on gratuities and if so how much.

Example

Facts

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.

Commentary

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 they were influencing or determining the amounts to be allocated to employees and therefore condition 2 (NIM02922) of the gratuity disregard could not be satisfied.

Published view from June 2005

After considering legal opinion HMRC changed its view and published revised guidance in the 2022 version of booklet E24. Employers who withhold sums from the tronc could still satisfy condition 2 of the gratuity disregard if they were not directly or indirectly allocating the payments.

Effect of change of view

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