Gratuities, Service Charges, Tips And Troncs
certificate as that is the responsibility of HMRC.
GRATUITIES, SERVICE CHARGES, TIPS AND TRONCS In principle PAYE must be applied to all payments made by an employer to an employee including tips. A tip or gratuity is a spontaneous payment offered by a customer notwithstanding the method of payment (cash, cheque or debit card). Where tips or gratuities are paid directly to or left for employees voluntarily and without any involvement of the employer or their representative, PAYE does not apply. The employee however has a responsibility to declare such payments to HMRC. A Service Charge is an amount added to a bill prior to its presentation to a customer. PAYE (Tax and NICs) must be applied by an employer on mandatory service charges irrespective of the distribution process. A service charge added to a bill, clearly defined as optional and at the customer’s discretion is recognised as a voluntary service charge. COP RIGHT © 2021 THE CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS Where an employer is directly involved in the administration of the payment of tips or gratuities and where there is a contractual entitlement to a share of such payments, the employer is then responsible for administering PAYE on these amounts, including Class 1 NICs. Tronc A Tronc is a French word meaning ‘little box”. In practice it is a special arrangement for pooling, distributing and administering tips, gratuities or service charges where such payments made to a group of employees are administered by and paid out to employees, by an employee acting as ‘Troncmaster’ who has responsibility for operating a separate PAYE scheme for all payments made from the Tronc independent of the employer. Details of the Troncmaster must be notified to HMRC for schemes that come into existence after 6th April 2004 so that a PAYE scheme can be set up in their name. The employer can act as the Troncmaster’s payroll agent but the records for each scheme must be kept separate. The Troncmaster makes deductions on account of tax from the payments out of the Tronc and submits RTI returns in respect of these payments. Even if payments are administered by the Troncmaster (e.g. the headwaiter), the responsibility for ensuring that NICs are calculated, deducted and recorded where due rests with the employer. No printing, copying or reproduction permitted. The employer must obtain details from the Troncmaster of all payments made and: • record the amounts and dates of all payments • include payments in gross pay when calculating NICs if they are due, and • include all payments on employees’ payroll records. The Troncmaster must record separately the amounts on which NICs both ‘are’ and ‘are not’ payable. If an employer is not satisfied with the administration of the scheme then he would be advised to: • control the sharing out of payments • include the formula for sharing out payments in employment contracts.
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