UK Tronc and Tips Calculator 2026/27

How tips are taxed in the UK

Tips, gratuities and service charges paid to UK workers are taxable earnings under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (HMRC EIM07900). Income Tax is due however the tip reaches the worker; it is collected through PAYE when the employer or a troncmaster pays it out. What varies is whether Class 1 National Insurance also applies, and for tips that turns mainly on one question: who decides the allocation?

If the employer decides - pooling tips and dividing them, or paying them through the regular payroll in shares it sets - the payments are earnings and Class 1 NI applies: employee NI at 8% (or 2% above the £50,270 Upper Earnings Limit) and employer NI at 15% above the Secondary Threshold.

If a genuinely independent troncmaster decides the allocation, and the employer plays no part in it directly or indirectly, HMRC disregards the payments for Class 1 NI (NIM02942). They are still taxable. The troncmaster operates a PAYE scheme for the tips in their own name and deducts Income Tax from each worker’s share, but no NI is charged.

Mandatory service charges are the exception. If a service charge is one the customer is obliged to pay, NI is always due on the money paid out to staff, however it is shared out and even through a tronc (HMRC E24; NIM02941). This calculator’s independent-tronc option assumes voluntary tips and discretionary service charges.

The Employment (Allocation of Tips) Act 2023

The Act received Royal Assent on 2 May 2023, and its main provisions and the statutory Code of Practice on the fair and transparent distribution of tips took effect on 1 October 2024. The headline rules, inserted into the Employment Rights Act 1996:

• Employers must pass on all qualifying tips, gratuities and service charges to workers, without deductions except those required or authorised by statute, such as Income Tax (s.27D).
• Tips must be allocated and paid no later than the end of the month following the month the customer paid them (s.27G), so a tip paid on 14 March must reach the worker by 30 April.
• Employers must have a written tipping policy and keep a record of tips received and how they were allocated, for three years. Workers can ask to see the record.
• A worker (including an agency worker) can complain to an employment tribunal within 12 months of the failure (s.27K). The tribunal can order the employer to deal with the tips properly and award up to £5,366 compensation for financial loss (s.27M). Separate complaints, also with awards of up to £5,366, cover failures over the written policy and tipping records (s.27O). Both limits are uprated each April; £5,366 applies from 6 April 2026 (SI 2026/310).

The Act does not change the tax or NI treatment. Income Tax is still due, and NI still depends on who controls the allocation and on whether the money comes from a mandatory service charge.

Independent tronc vs employer-controlled - the worked test

HMRC’s National Insurance Manual from NIM02940CO sets out the test for whether tronc payments escape Class 1 NI. The core question is whether the employer plays any part, directly or indirectly, in deciding who receives a payment and how much. The points HMRC look at:

1. Who picks the troncmaster? HMRC does not prescribe who the troncmaster should be, and the employer may appoint one. But choosing someone who influences how the business is run, such as a company director, may indicate that the employer is indirectly allocating the payments (NIM02942).
2. Who decides the split? If the employer plays no part in deciding what is paid and to whom, and has not set up a system that allocates the tips to reflect its wishes, the payments are disregarded from earnings for NI (NIM02942). If it does, NI is due.
3. Does the employer guarantee a minimum? Where the employer agrees a minimum each employee will get and tops up any shortfall, the top-ups are contractual pay, and NI is also due on the minimum paid from the tronc; only amounts above the minimum that the employer does not allocate escape NI (NIM02957).
4. Where does the money come from? Payments funded by compulsory service charges are not tips and cannot be disregarded from earnings (NIM02941).

NI saving mechanics - the worked example

Take a basic-rate hospitality worker earning £24,000 base + £3,000 tips a year (2026/27, England):

• Income Tax on tips: the £3,000 sits in the basic-rate band, so it is £600 under either scheme.
• Independent tronc: no employee NI on the tips. Take-home from tips = £2,400.
• Employer-controlled: employee NI of £240. Take-home from tips = £2,160.
• Tronc saving for the worker: £240 a year.
• Tronc saving for the employer: 15% of £3,000 = £450 a year, because the base wage is already above the Secondary Threshold.

For a higher-rate worker on £55,000 base + £4,000 tips, the tips are above the UEL, so the worker’s NI saving is only 2% (£80), while the employer’s stays at 15% (£600). For an additional-rate worker on £130,000 base + £5,000 tips, the worker saves £100 and the employer £750.

Watch out for

• Cash tips kept person-to-person, with no employer involvement, are outside the Act. They are still taxable: the worker reports them to HMRC (through Self Assessment, their personal tax account or the Income Tax helpline) and the tax is usually collected through a tax code adjustment. No NI is due on them (HMRC E24). If the employer tells staff how to share cash tips, or collects and redistributes them, the Act is likely to apply.
• Mandatory service charges: NI is always due on the amounts paid to staff, even through a tronc (HMRC E24).
• National Minimum Wage: for pay reference periods starting on or after 1 October 2009, tips, gratuities, service charges and cover charges do not count towards National Minimum Wage pay (HMRC E24). The base wage on its own must meet the statutory hourly rate.

Related guides

• Salary Calculator - the engine that drives base-wage tax in this calculator.
• Hourly Rate Calculator - convert hourly pay to annual gross before adding tips on top.
• Self-Employed Tax Calculator - if you are self-employed and receive tips directly, declare them via Self Assessment.