Many businesses still failing to make the most of troncs

"Don’t relax just yet," comes the warning to restaurants, pubs and hotels from Peter Davies of Vantis Tax as for the first time in three years, Her Majesty’s Revenue & Customs (HMRC) fails to issue a new interpretation regarding tips and troncs.

Davies says silence from HMRC does not mean further investigations are not planned, and with many businesses in the catering sector still failing to operate tronc systems effectively, now is the time for review.

While many businesses have already addressed past problems, claimed refunds, and implemented new, robust, and immeasurably better systems, there are still some that have simply breathed a sigh of relief and let this particular sleeping dog lie. But to ignore the issue is, at best, costing businesses and their employees unnecessary payments of National Insurance, and at worst storing up problems for the future.

Davies highlights four common statements and suggests ways to deal with tips so they are within HMRC rules and deliver the best benefits to staff.

1. “We just find it easier not to have a tronc”

This is, of course, the safety-first option. Perhaps no tips on cards are accepted, and no discretionary charge suggested, while staff sort out any cash tips themselves. While no one will fall foul of the Revenue under this scenario, staff may not be reaping the full rewards for their efforts. Tips and service charges may even be collected and paid out as part of the wages and subject to National Insurance. This is safe - but costly. Almost a quarter of such tips is going to HMRC when it need not. These days any business of any size can, and should, be taking advantage of the exemption from National Insurance contributions on gratuities.

2. “After all the problems they had, the Revenue won’t come looking now”

This is a common view but a flawed one. Just as many hospitality businesses are subject to review this year as last. And the year before that. The main target and focus for the Revenue may have changed, but troncs are still very much on the radar. Having given up so much ground, the Revenue considered the latest E24 [1] to be the (final) line in the sand. Any business which is found to be in breach can expect little sympathy or understanding and will instead face the full wrath of the Inspector with demands for retrospective arrears and penalties. The message is clear: if there is any doubt about the robustness of arrangements, they should be reviewed immediately.

3. “If we try and claim a refund from HMRC, we’ll just have them back again”

This is, of course, what the Revenue would like businesses to think. Giving money back is a painful process and HMRC is no different from anyone else on this. But if business and its employees paid incorrect amounts of National Insurance (or even worse interest and penalties as a result of an enquiry) they should not be shy about coming forward with clear and concise arguments to support their position.

4. “Are we making the most of our tronc?”

This is where most businesses should be. The days of a tronc simply being a means of getting money from A to B without incurring National Insurance have long gone. Today, properly and imaginatively run troncs are systems for rewarding, incentivising and motivating staff, bringing different disciplines within an establishment together, and saving time and administration by running tips through the business payroll. The new E24 made all of this possible (or rather, confirmed it had always been possible) and should be used to maximum advantage by all businesses for both their benefit and that of their employees.