Running a tronc scheme isn’t complicated, but get it wrong and you could face some serious consequences. We’re talking thousands in unexpected tax bills, unhappy staff, and potential tribunal claims under the new tipping legislation.
Over the years, we’ve seen businesses make the same mistakes again and again, so we’ve put together the five most common tronc blunders and, more importantly, how to dodge them.
Mistake 1 – appointing the wrong person as Troncmaster
This is the big one. The mistake that wipes out all your National Insurance savings in one go.
For example, you’re a restaurant owner setting up your first tronc scheme. You think, “I’ll make my General Manager the Troncmaster. They’re trustworthy, they understand the business, and the staff respect them.”
Although this may seem like a sensible choice, if the person you have chosen to be your Troncmaster has any hiring or firing responsibilities (as many GMs do) , HMRC won’t consider them independent from the business. That means your entire tronc scheme becomes non-compliant, and suddenly you’re liable for National
Insurance on all those tip payments.
A restaurant bringing in £25,000 in monthly tips could face an additional NIC bill of around £3,750 every month. That’s £45,000 a year that you thought you were saving, gone.
Who can’t be a Troncmaster?
- Business owners or directors
- Anyone involved in hiring decisions
- Senior managers with leadership responsibilities
- HR personnel
- Anyone HMRC would view as an extension of the employer
The fix: Choose a trusted staff member with no hiring power, or use an independent third-party Troncmaster service. Yes, there’s a cost involved with using a third party, but it’s a fraction of what you’d lose in National Insurance if you get it wrong.
Mistake 2 – including mandatory service charges in your tronc
Not all service charges are created equal, and mixing them up in your tronc scheme can cause serious headaches.
Here’s the scenario: A hotel adds a 12% service charge to all bills for conference and event bookings. The charge is non-negotiable and stated clearly on quotes. The events manager thinks, “Great, more money for the tronc pot!”
But there’s a problem. That’s a mandatory service charge, not a discretionary one. Mandatory service charges are treated as business income and can’t go through a tronc scheme. They’re subject to corporation tax and, if distributed to staff, should go through regular payroll with full National Insurance.
The simple rule is that if the tip, service charge, gratuity (whatever you call it) is optional, then it can be included in the tronc scheme. Many operators now add a service charge to the bill, but this can still be discretionary as long as it is made clear to the customer that it is optional.
The fix: Review all your service charges. If customers can opt out or remove them, they’re discretionary and can go in the tronc. If they’re fixed and non-negotiable, they need to go through standard payroll. It’s worth updating your point-of-sale systems to separate these clearly.
Mistake 3- poor record-keeping (or no record-keeping at all)
Under the Employment (Allocation of Tips) Act 2023, which came into law in October 2024, businesses must keep detailed records of all tip allocations for at least three years. This may sound straightforward, but you’d be surprised how many places are still ‘winging it’ with the back of an envelope and a calculator.
This becomes a real problem in cases such as an employee making a tribunal claim, saying they weren’t given their fair share of tips over the past two years. Without proper records, how do you prove what tips came in and how they were distributed? You can’t.
What records you need:
- Total tips and service charges received each period
- How tips were allocated (the calculation method/rules)
- Individual payments to each staff member
- Dates of all distributions
- Details of any deductions (only tax is permitted)
The fix: Set up a proper system from day one. This could be a spreadsheet, dedicated software, or using your Troncmaster service’s reporting tools. The key is consistency and completeness. Update records every single time tips are distributed, not at the end of the month when you’re trying to remember what happened.
Mistake 4 – not consulting staff on distribution rules
The Allocation of Tips legislation has one golden thread running through it: fairness. And you can’t prove something is fair if you’ve made all the decisions behind closed doors.
Picture a pub that decides to split tips 70% to front-of-house and 30% to kitchen staff. Sounds reasonable, but they never asked the kitchen team what they thought. Six months later, half the kitchen staff leave, citing unfair treatment. The remaining team is overworked, service suffers, and customer complaints spike.
Even worse, under the new legislation, if an employee believes tips aren’t being distributed fairly, they can take the matter to a tribunal. Without evidence that you consulted staff and sought their input, your position becomes much harder to defend.
The fix: Proper employee consultation isn’t just a box-ticking exercise. Hold meetings, run surveys, and get feedback. Document everything. When you set your tronc rules, make sure staff understand why decisions were made and that they had the opportunity to contribute.
If you’re making changes to an existing scheme, the consultation becomes even more important. Explain why changes are needed and give staff time to respond before implementing anything.
The beauty of a well-run tronc scheme is that it should have a tronc constitution, which lays down the distribution rules, and this constitution is given to all staff so they fully understand the rules behind how their share of the tips has been calculated.
Mistake 5: Confusing your tronc with regular payroll
This one trips up a lot of businesses, especially those managing their own tronc scheme.
Here’s what happens: Tips come in through card payments and land in the business account. The payroll person adds them to the next wage run as “extra pay” alongside regular wages. Problem solved, right?
Not quite. While you can process tronc payments through your existing PAYE system, they must be kept completely separate from regular wages. If they’re not clearly identified as tronc payments, HMRC might decide they’re just additional wages and charge National Insurance on the whole lot.
Common mixing mistakes:
- Adding tips to overtime or bonus payments without clear separation
- Using the same payment code for tips and wages
- Not clearly labelling tronc payments on payslips
- Failing to show that the Troncmaster (not the employer) controlled the distribution
The fix: Even if you’re using your existing PAYE, tronc payments need their own clear identity. They should appear separately on payslips, with their own payment codes, and your payroll records must show they were allocated by the Troncmaster, not the employer.
Some businesses prefer to set up a completely separate PAYE scheme for the tronc. This isn’t necessary and can cause tax code confusion for employees. Read our blog ‘Why a separate PAYE scheme is unnecessary for train arrangements.’
The cost of getting it wrong
If you make mistakes in any of these areas, it jeopardises the compliance of your tronc scheme. And, as with any tax arrangement or regulation, the consequences from HMRC are harsh, including;
Financial costs:
- Back payment of National Insurance (employer and employee) on all tip distributions
- Potential penalties and interest from HMRC
- Legal costs if staff take tribunal action
Operational costs:
- Staff morale plummets when they discover they’ve been underpaid
- Recruitment becomes harder when word gets out about unfair practices
- Time spent sorting out the mess instead of running your business
Reputational costs:
- Customers lose trust when they hear tips aren’t reaching staff
- Negative reviews mentioning unfair treatment of staff
- Difficulty attracting quality team members
How to get it right
None of these mistakes are inevitable. Here’s your checklist for a compliant, effective tronc scheme:
- Choose an independent Troncmaster who has no hiring responsibilities
- Clearly separate discretionary and mandatory charges
- Set up robust record-keeping from day one
- Consult staff properly on distribution rules and document it all
- Keep tronc payments completely separate from regular wages, even within the same PAYE
And if all this sounds like a lot to manage on top of running a busy hospitality business? That’s exactly why third-party Troncmaster services, such as Tips and Troncs exist.
A professional service handles the compliance, keeps the records, ensures independence, and takes away the risk. The cost is typically far less than what you’d lose from making even one of these common mistakes.
Review your existing tronc scheme
If you’re already running a tronc scheme, it’s worth doing a quick audit:
- Is your Troncmaster truly independent?
- Are all your service charges properly categorised?
- Can you easily produce three years of tip distribution records?
- Do you have documented evidence of staff consultation?
- Are your tronc payments clearly separated in your payroll system?
If you answered “no” or “not sure” to any of these, it’s time to review your setup. The sooner you fix potential issues, the less they’ll cost you in the long run.
Running a compliant tronc scheme doesn’t have to be complicated, but it does need to be done properly. Your staff deserve fair treatment, and your business deserves the tax savings that a proper tronc scheme delivers.
Got questions about your tronc setup? Not sure if you’re making any of these mistakes? Get in touch for a no-obligation chat. We’d rather help you avoid these pitfalls than watch you discover them the expensive way.