The Employment (Allocation of Tips) Act came into force in October 2024.
It changed the legal obligations around tips, service charge, and tronc for every hospitality business in the UK.
Twelve months on, a significant number of multi-site groups are still operating schemes that do not fully comply with the new rules – either because the changes were not fully understood at the time, or because the scheme was not reviewed after the legislation passed.
HMRC has been increasingly active in this area.
A tronc scheme that was structured correctly before October 2024 may not be compliant today.
Here is what changed, what the exposure looks like, and what to do about it.
What the Act changed
Before the Act, there was no statutory requirement for employers to pass tips to employees.
Many did, through a tronc or direct allocation, but the obligation was contractual rather than legal.
Employers who retained service charge – even a portion of it – were not necessarily in breach of any law.
That position no longer holds.
The Act creates a legal duty for employers to pass all qualifying tips, gratuities, and service charge to workers without any deduction.
The obligation applies to tips paid by card as well as those given in cash.
It applies to agency workers as well as directly employed staff.
There are three key changes that directly affect how group operators need to structure their arrangements.
- The first is the written policy requirement.
Every employer must have a written tips policy and must make it available to all workers.
The policy must explain how tips are allocated, what system is used, and how workers can request information about their allocation.
This is not optional – it is a legal requirement with enforcement consequences.
- The second is the allocation method.
Employers who use a tronc must ensure the troncmaster is genuinely independent – that is, they are not a director, officer, or significant controller of the business.
If the troncmaster is not independent, the NIC treatment of the tronc distribution changes materially.
HMRC takes the position that a non-independent troncmaster means employer NIC applies to distributions that would otherwise be exempt.
- The third is the right to request a statement.
Workers now have a statutory right to request a written statement of how tips were allocated to them in any given pay period.
The employer must provide this within four weeks of the request.
In a group with multiple sites and hundreds of employees, the operational infrastructure to support this right needs to be in place before a request comes in – not after.
What HMRC is focused on
HMRC’s compliance activity in the tronc space has increased since the Act came into force. The main areas of focus are:
- Independence of the troncmaster.
HMRC is challenging schemes where the troncmaster has a relationship – formal or informal – with the business ownership or senior management.
If challenged successfully, employer NIC liability applies retrospectively to all distributions made under the scheme.
In a group taking £5m in service charge annually, the NIC exposure on a non-compliant scheme is material.
- The treatment of service charge versus discretionary tips.
These are treated differently under the Act and under HMRC’s guidance.
Service charge added to a bill as a percentage is a different instrument to a cash tip left voluntarily.
Your scheme documentation needs to be explicit about which category each type of income falls into, and how it flows through the tronc.
- Allocation methodology consistency.
If your tronc rules say allocation is based on hours worked and role type, and your actual distributions do not match that methodology, HMRC treats the difference as evidence of employer control – which undermines the independence argument and the associated NIC position.
- Record-keeping.
The Act introduced a new requirement to keep records of all qualifying tips received and distributed for a minimum of three years.
Many groups do not have a system that captures this at the required level of granularity, particularly for cash tips across multiple sites.
What to do now
If your tronc scheme has not been reviewed since October 2024, the priority actions are:
- Review the troncmaster arrangement.
If the troncmaster is a director, manager, or anyone with a controlling interest in the business, that needs to change.
The troncmaster should be a senior team member – typically a head of department or similar – who is genuinely empowered to make allocation decisions independently of management instruction.
- Update and publish your tips policy.
The policy needs to cover all qualifying tips by type, explain the allocation method clearly, and be distributed to all workers across all sites.
It should be a living document that is reviewed at least annually and updated when your scheme or operating model changes.
- Check your allocation methodology matches your tronc rules.
Pull the last three months of distributions and verify that the method described in your rules matches what was actually paid.
Any systematic divergence is a compliance risk.
- Put the record-keeping infrastructure in place.
You need a system that captures tip income by site, by period, and by individual, and that can produce a breakdown for any worker who requests it.
For most groups, this means either upgrading your tronc administration software or putting a structured manual process in place.
- Model the NIC position.
If there is any doubt about the independence of your troncmaster arrangement, model the employer NIC cost of the current distributions.
Understanding the quantified exposure is the starting point for deciding whether and how to remediate it.
The broader point on tronc
Done well, a tronc scheme is not just a compliance mechanism.
It is a tool for employee engagement, retention, and – when structured with a genuine allocation method – a demonstration to your team that service charge goes to the people who earn it.
The groups that approach tronc this way – transparent allocation, independent troncmaster, clear documentation – tend to have fewer disputes, lower staff turnover, and a cleaner HMRC position.
The compliance work and the operational benefit are not separate workstreams. They are the same thing, done properly.
Williams, Stanley & Co. advise hospitality groups on tronc scheme structure, troncmaster independence, and HMRC compliance.
If your scheme has not been reviewed since the Employment (Allocation of Tips) Act came into force, talk to us before HMRC does.