Tips, Troncs and the New Tipping Rules: A Guide for Hospitality Employers (2026/27)

Quick answer: employers must already pass on 100% of tips fairly, within a month, and have a written tipping policy. New rules due by the end of 2026 add worker consultation and a review every 3 years. How tips are paid out also decides the tax: an independent tronc avoids National Insurance, but tips paid through the employer's own payroll don't.

Tips are a big part of pay in restaurants, cafés and hotels. The law on handling them changed in October 2024, and more changes are on the way. This guide is written mainly for employers: what they must do now, what's coming, and how each way of paying tips is taxed, using the rules for the 2026/27 tax year. If you work in hospitality, there's a section for staff in the FAQs below.

The rules you must follow now

The Employment (Allocation of Tips) Act 2023 has applied since 1 October 2024. It covers tips, gratuities and service charges that the employer controls or has significant influence over. That includes card tips and any cash the employer collects and shares out.

Pass on 100%. No deductions except tax. Employers can't take off admin or tronc running costs.
Pay on time. Tips must reach staff by the end of the month after the customer paid them. A tip left on 23 June must be paid by 31 July.
Share them fairly. Consider every worker involved in serving customers, including agency workers. Tips stay at the site where they were left, so they can't be pooled across branches.
Have a written tipping policy. It must be available to all staff, unless the business only receives tips occasionally.
Keep records for 3 years. A worker can ask for their tipping record once every 3 months, and the employer must reply within 4 weeks.

Cash tips that a worker receives and keeps, with no involvement from the employer, fall outside these rules.

If an employer gets it wrong, a worker can go to an employment tribunal. It can order the employer to put things right and award up to £5,000 per worker.

Tips also don't count towards the National Minimum Wage. Employers must pay at least the minimum wage on top.

What's changing: consultation and a review every 3 years

The Employment Rights Act 2025 adds three new duties for employers' written tipping policies:

Consult before writing it. Employers must talk to workers before first creating the tipping policy, and again whenever it's revised. If the employer recognises a trade union, consult its representatives. If not, consult other worker representatives. If there are none, consult the workers likely to be affected.
Review it at least every 3 years. Each review needs a fresh round of consultation.
Share a summary of what staff said. Give all workers at that site a written summary of the views put forward, with names removed.

The draft guidance says consultation should match the size of the business, so a small café won't need the same process as a hotel chain. Employers should keep a simple written record of who was asked, what they said and what was decided.

Workers will be able to bring a tribunal claim if their employer doesn't consult properly.

When does this start? These rules were due on 1 October 2026 but have been delayed. The government withdrew its first draft of the updated Code of Practice after criticism and consulted again until 29 September 2026. It now expects the rules to start in late 2026, once Parliament approves the new Code. No exact date has been set yet.

The draft Code also makes clear that:

employers can't rename a tip or service charge (for example as a "cover charge") to get around the rules, as it's the substance that counts
back-of-house staff who help serve customers should be considered
fixed or guaranteed tip amounts for particular staff are discouraged
employers are encouraged, but not required, to share their tipping policy with customers

Employers don't need to change anything today, but it makes sense to get ready now.

How tips are taxed: direct, pooled, not pooled or tronc

Tips are always taxable income for the worker. Whether National Insurance is due depends on who handles the money and who decides how it is shared. The 2024 tipping law didn't change any of this. HMRC's rules are in its guide E24: Tips, gratuities, service charges and troncs.

How tips reach staff	Income tax	National Insurance
Cash given straight to the worker, who keeps it	Due. The worker tells HMRC, and HMRC usually adjusts their tax code. The employer doesn't put it through payroll	None
The employer collects tips (card tips, or cash it gathers) and pools them through its payroll	Through the employer's payroll (PAYE)	Due: employee and employer
No pooling: card tips go to whoever served, paid through the employer's payroll	Through the employer's payroll (PAYE)	Due: employee and employer
An independent tronc, run by a troncmaster who decides who gets what	Through a separate tronc PAYE scheme	None
A compulsory service charge	Through payroll (PAYE)	Always due

"No pooling" doesn't avoid National Insurance. If a card tip passes through the business and the employer pays it out through payroll, the employer is deciding where it goes, so National Insurance is due even if each tip goes to the person who served.

What makes a tronc work

A tronc is a separate arrangement for sharing tips, run by a troncmaster. The troncmaster is often a senior member of staff, or an external accountant or payroll bureau, which makes it easier to show the arrangement is independent of the business. They:

decide who gets what, without the employer deciding it directly or indirectly
run a separate tronc PAYE scheme in their own name, which the employer must tell HMRC about when it's set up. It can use the employer's payroll software, but it must be kept entirely separate from the employer's own PAYE scheme
are personally responsible for operating PAYE correctly

National Insurance comes back in if:

the owner, a business partner or a director acts as troncmaster: the payments are then treated as the employer's and go through its own payroll
the troncmaster simply follows the employer's instructions: HMRC treats that as the employer allocating the tips
staff are promised a fixed or contractual amount from tips: that amount counts as allocated by the employer

The employer can suggest who takes part, as long as the troncmaster makes the final decision on who gets what.

Under the tipping law the employer stays responsible for the scheme being fair, even with a tronc. If it reasonably believes the troncmaster is independent and fair, it's treated as complying. If it finds out they aren't, it must act. Consulting staff on the tipping policy is fine, but keep the actual sharing-out decisions with the troncmaster.

Tips through apps. Tips paid through a third-party app straight to the worker are treated like cash kept by the worker: the employer doesn't run PAYE on them and no National Insurance is due. The worker still pays income tax on them and must tell HMRC, for example through a Self Assessment tax return, and HMRC may adjust their tax code. Tips collected through the employer's own system follow the payroll rules above.

What the difference is worth

Example: a front-of-house worker earns a £25,000 salary and gets £3,000 of tips over the year. They are a basic-rate taxpayer.

How tips are paid	Income tax (20%)	Employee NI (8%)	Worker keeps	Employer NI (15%)
Cash, kept by the worker	£600	£0	£2,400	£0
Pooled through the employer's payroll	£600	£240	£2,160	£450
Not pooled, paid through the employer's payroll	£600	£240	£2,160	£450
Independent tronc	£600	£0	£2,400	£0

Across a whole venue the numbers add up quickly. With £60,000 of card tips a year paid through payroll, the business pays about £9,000 in employer National Insurance. Staff lose up to about £4,800 in their own National Insurance. A properly run tronc can save both.

Employer National Insurance is the employer's own cost, so it can't be taken out of the tips. If the business can claim the Employment Allowance (up to £10,500 off employer National Insurance), it may already cover some of this cost.

The figures use 2026/27 rates for England and ignore pensions and student loans. Staff earning under £12,570 pay no employee National Insurance, and above £50,270 the rate drops to 2%.

Service charges and VAT

A discretionary service charge (the customer can genuinely choose not to pay it) is treated like a tip. It's outside VAT, and it must be passed on in full.
A compulsory service charge is part of the price. The business charges VAT at 20% on it, and National Insurance is always due when it's paid to staff. It is still covered by the tipping law, so it must be passed on to workers.
Tips freely given are outside VAT.

Getting ready: a checklist for employers

Check you have a written tipping policy, that staff can see it, and that it explains how tips are collected, shared and paid out.
Decide how you'll consult: through a union, worker reps, or all staff (a meeting, a survey or an email).
Plan to keep a short record of each consultation and a summary with names removed to share with staff.
Put a date in the diary to review the policy at least every 3 years.
Check that tips are paid by the end of the following month, with nothing deducted except tax.
Make sure you can answer a worker's request for their tipping record within 4 weeks.
Check how your service charge is worded on menus and bills, and whether it's optional or compulsory.
If card tips go through your payroll, look at whether an independent tronc would save National Insurance, and set it up properly with HMRC.

Frequently asked questions

Does an employer need a written tipping policy?

Yes, if the business receives tips, gratuities or service charges more than occasionally. It must be available to all staff. Once the new rules start, the employer will also need to consult workers on it and review it at least every 3 years.

When do the new tipping consultation rules start?

They were due on 1 October 2026 but have been delayed. The government expects them to start in late 2026, once Parliament approves the updated Code of Practice. No exact date has been set yet.

Do tips count towards the National Minimum Wage?

No. Tips and service charges can't be used to top up pay to the minimum wage. Employers must pay at least the minimum wage on top of any tips.

Is National Insurance due on tips?

It depends how they're paid. Cash kept directly by the worker, or tips shared out by an independent troncmaster, carry no National Insurance. Tips the employer collects and pays through its own payroll do, for both the employer and the worker.

I work in hospitality: what does this mean for me?

You're entitled to every tip your employer handles, shared fairly and paid by the end of the following month. You can ask to see the tipping policy and your own tipping record. Once the new rules start, you'll also be consulted on the policy. If you keep cash tips yourself, or tips are paid through an independent tronc, you pay income tax on them but no National Insurance. Cash tips you keep should be reported to HMRC.

Can the owner or manager be the troncmaster?

An owner, business partner or director can't, as the payments are then treated as the employer's and National Insurance is due. A manager can, as long as they genuinely decide who gets what themselves and aren't just following the owner's instructions.

Is a service charge the same as a tip?

Under the tipping law, both must be passed on to workers in full. For VAT, an optional service charge is outside VAT, but a compulsory one is part of the price and has 20% VAT added.

In short

Pass on every tip fairly and on time, and keep the tipping policy and records up to date.
Get ready to consult staff and review the policy every 3 years once the new rules start in late 2026.
Choose how tips are paid out with tax in mind: an independent tronc can save National Insurance for the business and its staff.

Need help with tips, troncs or payroll? Meridian Accountants, Chartered Accountants based in Southampton, works with restaurants, cafés and hotels across Southampton, Romsey, Winchester, the New Forest, Totton and surrounding areas. We can review your tipping arrangements, set up a tronc PAYE scheme and run your payroll. Get in touch to book a call.

This article is general information based on the rules for the 2026/27 tax year in England, Wales and Northern Ireland, and on the draft Code of Practice as at October 2026. It is not advice on your specific circumstances. Please speak to an accountant before acting.