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Cashless payments: tips and troncs

Cashless payments: tips and troncs

Friday, 04 December 2020

The leisure and tourism industry has been moving towards going cashless for a while now and there’s a growing demand for contactless payments. I think it would be fair to say this used to be a generational trend, however, the pandemic has heightened the need for businesses to evolve and modernise their systems to cope with the preference for a cashless service.

So, the question is: “How are tips paid to employees when the majority of payments are received via card?”

Whilst there are certainly many advantages to operating a cashless system, the drawbacks also need careful consideration. Receiving tips at the end of a service plays a big part in the hospitality industry. However, in these changing times, what impact is this having on a business?

The increasing value of tips now being received by card means that business merchant service fees are also increasing. If the employer chooses to pass on the original value of the tip to their staff, the business would bear the costs of the merchant service fees.

In addition to this, tips are subject to PAYE. Now that tips are being received by card, it’s likely that the employer is involved in distributing the tips. This makes the employer liable for making sure these payments are processed through the payroll and that PAYE is declared accordingly. Alternatively, the employer can assign a troncmaster. Then it would be the designated individual who’d be liable for declaring and deducting PAYE on such payments.

Example

Frances opened a bistro in 2015. She allows the employees to keep all the cash tips and passes to them the tips, received by cheque and credit/debit card, in full. Mary, the head waitress, offers to collect all the cash tips and distribute these to the other employees each week. Frances has no involvement in this at all.

Mary is running a tronc and is the troncmaster. Frances must tell the HMRC office that deals with the PAYE for the bistro, of Mary’s appointment and any future change of troncmaster.

Mary is responsible for operating PAYE in the normal way on payments from the tronc. If she fails to deduct tax from payments she makes from the tronc, she may be held personally liable.

Where payments made from a tronc attract national insurance contributions (NICs) liability, the troncmaster is not required to pay NICs on those payments. Responsibility for calculating any NICs due and making payment to HMRC rests with the employer.

Payments of tips don’t attract NICs if:

  • the troncmaster is allocating money that originally was not paid to the employer and the employer does not pay the money directly or indirectly to their employees

  • the employer does not determine, directly or indirectly, the allocation of those tips

If you have any questions regarding Tips and Troncs, please speak to your usual Larking Gowen contact. You can find contact details on the Our People section of the Larking Gowen website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Julia Dickens

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