The eagerly-awaited republication of tax guidelines for tronc was hailed "a significant victory for common sense" by the British Hospitality Association (BHA).
After months of uncertainty, the Inland Revenue (IR) reissued its controversial tronc booklet, E24, today (10 February), clarifying a number of contentious issues.
BHA chief executive Bob Cotton said: "The guidelines set the scene for a clearer understanding of what remain very complex regulations, and will come as a huge relief to many restaurateurs."
The most significant change to the IR's judgement on tronc is that the "all or nothing" principle has been abandoned. Employers are now free to use money collected through tips and service charges however they want - as long as tax is paid appropriately.
This means businesses can use tip money to top up payroll, but that cash is subject to national insurance contributions (NIC). Money from tips handed over to a troncmaster will not be subject to NICs, but cannot be controlled by employers in any way.
The IR's previous judgement that a tronc must be fully taxed if any portion of money was used towards wages has now been overturned.
Employers across the hospitality industry welcomed the changes, which allow them far greater control over money coming through a business.
Cash tips should be declared annually by staff, while credit card tips must be taxed at source. Where there is a tronc scheme, the troncmaster, who is not allowed to be the proprietor or company director, is still responsible for deducting and paying PAYE.
Peter Davies, tax consultant at Vantis, said the revisions were "an improvement on the old". But he warned that the IR would be stepping up its attempts to recover NICs from any companies that continue to fail to comply with the revised guidelines.
"Restaurateurs should now use tronc as a tool for rewarding, motivating and incentivising staff, not as a cash slush fund," he said.
Key changes to E24 tronc guidelines
- Businesses can choose how much service charge and tips to pass to the troncmaster.
- Any service charge kept by the business but used to top up staff wages is subject to PAYE and NICs.
- Tips allocated to the troncmaster are NICs-free.
Source: Caterer & Hotelkeeper magazine, 10 February 2005