UK Tronc and Tips Tax (2026/27)
How UK tips are taxed in 2026/27: Income Tax on all tips, no NI through a genuinely independent tronc, NI if the employer decides the split.
All UK tips are subject to Income Tax. Whether National Insurance also applies depends on how the tip is paid and who decides how tips are shared out. A tronc where the employer plays no part in the allocation removes both employer and employee NI from tip payments, which is why many hospitality businesses use one.
Tax treatment by tip type
| Tip type | Income Tax | Employer NI | Employee NI |
|---|---|---|---|
| Cash tip direct to staff (employee keeps, no employer involvement) | Yes | No | No |
| Voluntary tips or discretionary service charge via a tronc, employer plays no part in allocation | Yes | No | No |
| Card tips or service charge, employer decides allocation | Yes | Yes (15%) | Yes (8% / 2%) |
| Cash tips, employer influences distribution | Yes | Yes (15%) | Yes (8% / 2%) |
| Mandatory service charge, however shared out | Yes | Yes (15%) | Yes (8% / 2%) |
Treatment per HMRC E24 and NIM02942. Employer NI applies above the Secondary Threshold; employee NI is 8% up to the Upper Earnings Limit and 2% above it.
What makes a tronc NI-free?
- A troncmaster who decides the allocation. The employer may appoint them, but appointing someone who influences how the business is run, such as a director, may indicate indirect employer allocation (NIM02942).
- The employer plays no part, directly or indirectly, in deciding who receives payments and how much, and has not set up a system that allocates them to reflect its wishes (NIM02942).
- A PAYE scheme for the tips in the troncmaster's name, unless different PAYE arrangements are agreed. The troncmaster is personally responsible for running it (HMRC E24).
- The money comes from voluntary tips or discretionary service charges, not a mandatory service charge, which always attracts NI.
- Separately from NI, the employer must meet the Employment (Allocation of Tips) Act 2023 duties: pass on all qualifying tips, keep a written policy and keep tipping records.
Related
Frequently asked questions
Are tips taxed in the UK?
Yes, all tips are taxable income. Whether National Insurance also applies depends on how they are paid and shared out. Cash tips a customer hands straight to a worker, who keeps them, carry Income Tax only. Tips shared out by an independent troncmaster, with no employer involvement in the allocation, are also Income Tax only. Where the employer decides, directly or indirectly, who gets what, employer and employee NI are due as well. Money from a mandatory service charge always attracts NI.
What is a tronc?
A tronc is a separate arrangement for sharing out tips and service charges, run by a troncmaster who decides the allocation. The employer may appoint the troncmaster, but choosing someone who influences how the business is run, such as a director, may indicate the employer is indirectly allocating the money (HMRC NIM02942). A PAYE scheme is set up in the troncmaster's name to deduct Income Tax; where the employer plays no part in the allocation, no NI is due on the payments.
What changed with the Tipping Act 2023?
The Employment (Allocation of Tips) Act 2023, with its main provisions in force from 1 October 2024, requires employers to pass on all qualifying tips, gratuities and service charges to workers without deductions other than those required or authorised by statute, such as Income Tax. Employers must have a written tipping policy and keep tipping records, workers can ask to see them, and workers can complain to an employment tribunal. The Act does not change the tax treatment.
Are mandatory service charges treated like tips?
Not for National Insurance. HMRC's E24 guidance says that if a service charge is one the customer has to pay and the money is paid out to employees, NI is always due on it, however it is shared out and even if it goes through a tronc. Income Tax is due as well. For the Tipping Act, service charges count as qualifying tips whether added automatically or optional, so they must still be passed on to workers.
Are tips counted as earnings for Statutory Maternity Pay?
Not tronc payments that are disregarded for National Insurance. SMP average weekly earnings exclude payments disregarded for Class 1 NI under Schedule 3 to the Social Security (Contributions) Regulations 2001 (SMP Regulations 1986 reg 20), and that schedule disregards qualifying tronc payments. Cash tips kept directly are not paid by the employer, so they do not count either. To qualify for SMP, average weekly earnings must be at least the Lower Earnings Limit, £129 a week in 2026/27.
Do I need to declare cash tips on Self Assessment?
Only if you send a tax return. Cash tips paid directly to you are untaxed income: if you file Self Assessment, include them on the return; if you do not, report them to HMRC through your personal tax account or the Income Tax helpline, and HMRC usually adjusts your tax code to collect the tax. Tips paid through a tronc or the payroll have tax deducted through PAYE already.