Are tips taxed in the UK?

Yes, all tips are taxable as income. The question is whether National Insurance also applies, which depends entirely on how the tip is paid and distributed. Customer cash tips kept by an individual employee are subject only to Income Tax (no NI). Tips pooled and distributed by a "troncmaster" through an HMRC-registered tronc scheme are also IT-only (no NI). Tips that pass through the employer's control (card tips, distribution influenced by the employer) attract both IT AND employer + employee NI.

A tronc is a separate organised arrangement for distributing tips and service charges that operates outside the employer's payroll. The arrangement must be run by an independent "troncmaster" - typically a senior staff member, not a director or owner - who decides distribution without the employer's influence. Properly operated, the tronc pays out to employees through its own PAYE scheme (Income Tax deducted at source) but no NI applies on the distributed amounts.

What changed with the Tipping Act 2023?

The Employment (Allocation of Tips) Act 2023, in force from 1 October 2024, requires UK employers to pass on 100% of tips, gratuities and service charges to staff (the employer can no longer keep any portion). It also mandates a written policy on tip allocation, gives staff the right to view tip records, and provides Employment Tribunal remedies for breaches. The Act does not change the tax treatment - just the entitlement and distribution.

Are tips counted as qualifying earnings for pension auto-enrolment?

No - tips paid through a tronc or as direct cash from customers are NOT qualifying earnings for the auto-enrolment 8% calculation. They count as pay for Income Tax purposes but the employer's 3% / employee's 5% auto-enrolment contributions apply only to basic salary plus other PAYE-able items. Some hospitality employers contribute pension on tips voluntarily under their scheme rules.

Are tips counted as earnings for Statutory Sick Pay / Maternity Pay?

Only the troncmaster-distributed amounts count toward "Average Weekly Earnings" for statutory pay purposes. Cash tips kept directly by an employee don't. Where SSP / SMP eligibility hinges on meeting the £123 weekly Lower Earnings Limit (2026/27), low-wage hospitality staff who rely on cash tips for income above LEL may not qualify - a long-standing concern in the sector.

Do I need to declare cash tips on Self Assessment?

Usually no - the employer or troncmaster should already be operating PAYE on tronc distributions, and cash tips kept directly should be reported to the employer who adjusts the PAYE code accordingly. Self Assessment is only required if total taxable income exceeds the £100,000 threshold, if the individual has multiple income sources unsuited to PAYE coding, or if HMRC specifically requests a return. Most hospitality staff stay PAYE-only.

UK Tronc and Tips Tax (2026/27)

All UK tips are subject to Income Tax. Whether National Insurance also applies depends on how the tip is paid and distributed. Properly operated tronc schemes save both employer and employee NI on tip distributions - one of the few legitimate NI-avoidance mechanisms in the UK payroll system, and the reason hospitality businesses invest in formal tronc arrangements.

Tax treatment by tip type

Tip type	Income Tax	Employer NI	Employee NI
Cash tip direct to staff (employee keeps)	Yes	No	No
Pooled tronc, independent troncmaster	Yes	No	No
Card / service charge, employer-distributed	Yes	Yes (15.05%)	Yes (8% / 2%)
Cash tip, employer influences distribution	Yes	Yes (15.05%)	Yes (8% / 2%)

What makes a tronc valid?

An independent troncmaster - not a director or shareholder - who decides distribution.
Distribution decisions not influenced by the employer; the troncmaster must have genuine discretion.
The tronc operates its own PAYE scheme (separate or part of the main one, but distinct accounting).
Card-tip income must reach the troncmaster without passing through the employer's business account (some banks now offer "tronc accounts" for this purpose).
Written policy on allocation, in line with the Employment (Allocation of Tips) Act 2023.

Frequently asked questions

Are tips taxed in the UK?: Yes, all tips are taxable as income. The question is whether National Insurance also applies, which depends entirely on how the tip is paid and distributed. Customer cash tips kept by an individual employee are subject only to Income Tax (no NI). Tips pooled and distributed by a "troncmaster" through an HMRC-registered tronc scheme are also IT-only (no NI). Tips that pass through the employer's control (card tips, distribution influenced by the employer) attract both IT AND employer + employee NI.
What is a tronc?: A tronc is a separate organised arrangement for distributing tips and service charges that operates outside the employer's payroll. The arrangement must be run by an independent "troncmaster" - typically a senior staff member, not a director or owner - who decides distribution without the employer's influence. Properly operated, the tronc pays out to employees through its own PAYE scheme (Income Tax deducted at source) but no NI applies on the distributed amounts.
What changed with the Tipping Act 2023?: The Employment (Allocation of Tips) Act 2023, in force from 1 October 2024, requires UK employers to pass on 100% of tips, gratuities and service charges to staff (the employer can no longer keep any portion). It also mandates a written policy on tip allocation, gives staff the right to view tip records, and provides Employment Tribunal remedies for breaches. The Act does not change the tax treatment - just the entitlement and distribution.
Are tips counted as qualifying earnings for pension auto-enrolment?: No - tips paid through a tronc or as direct cash from customers are NOT qualifying earnings for the auto-enrolment 8% calculation. They count as pay for Income Tax purposes but the employer's 3% / employee's 5% auto-enrolment contributions apply only to basic salary plus other PAYE-able items. Some hospitality employers contribute pension on tips voluntarily under their scheme rules.
Are tips counted as earnings for Statutory Sick Pay / Maternity Pay?: Only the troncmaster-distributed amounts count toward "Average Weekly Earnings" for statutory pay purposes. Cash tips kept directly by an employee don't. Where SSP / SMP eligibility hinges on meeting the £123 weekly Lower Earnings Limit (2026/27), low-wage hospitality staff who rely on cash tips for income above LEL may not qualify - a long-standing concern in the sector.
Do I need to declare cash tips on Self Assessment?: Usually no - the employer or troncmaster should already be operating PAYE on tronc distributions, and cash tips kept directly should be reported to the employer who adjusts the PAYE code accordingly. Self Assessment is only required if total taxable income exceeds the £100,000 threshold, if the individual has multiple income sources unsuited to PAYE coding, or if HMRC specifically requests a return. Most hospitality staff stay PAYE-only.

Tax treatment by tip type

What makes a tronc valid?

Frequently asked questions

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