NIM02956 | Tips, gratuities and service charges: Tronc arrangements: Examples: Example 1 - Troncmaster required to operate tronc in accordance with employer's wishes

The 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 requires Sharon to operate a points system he devised which determines who will get paid from the tronc and how much each employee will get.

Commentary

Frank is indirectly allocating the tips because Sharon is effectively carrying out Frank’s wishes as regards allocation of the tips. Neither of the conditions in the gratuity disregard are satisfied, (NIM02905). All tips paid out by the tronc will be liable for NICs. Frank will be liable for operating NICs on the payments.

But if Sharon decides to adopt and use the points system and there is no element of compulsion, then Frank has not been involved in the allocation and NICs are not due. Even though Frank has appointed Sharon as troncmaster he has played no part, directly or indirectly, in the allocation of the tips because he is not involved in determining who should receive tips and how much each employee should receive. In these circumstances, no NICs will be due on the tips received by the tronc members.