An employer is relieved of the duty to operate PAYE where there is an organised arrangement for gratuities or service charges to be shared among two or more employees by any person. Such ‘tronc’ arrangements are common in hotels and restaurants and the Income Tax (Pay As You Earn) Regulations 2003, reg. 100, places the responsibility for operating PAYE on the ‘tronc-master’.


A company director, by participating in the arrangement (holding the moneys before distribution for example), cannot divert from the company its PAYE obligations by claiming he was a ‘tronc-master’. It would be difficult, if not impossible, for the director to show he was not acting as an officer of the company (see Figael v Fox [1992] BTC 61: the director acted as employer when distributing tips, not as a ‘tronc-master’).


The guidance issued by HMRC on the treatment of tips for tax, NICs and National Minimum Wage purposes was found to be wrong as a result of Operation Gourmet, an Employer Compliance project carried out to collect unpaid duties from the hospitality industry. Revised guidance, which was itself incorrect, was replaced by a new version of Leaflet E24, Tips, Gratuities, Service Charges and Troncs, issued in 2006.


The revised guidance indicated that an employer could use tips from an independent tronc to satisfy the requirement to pay the minimum wage. However, an Employment Tribunal found that this was wrong. The tips do not belong to the proprietor and so cannot be used by him to discharge his legal liability. The case concerned Annabels, a well-known London nightclub.


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