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A Practical Approach to the New Tronc System

A Practical Approach to the New Tronc System

A tronc system is the means by which tips, gratuities and service charges are distributed amongst employees in a business. Since the revised E24 and Tax Bulletin 77 was published by the Revenue, it has been necessary for businesses to review their procedures.


There are four areas that need consideration:

a) Income Tax,

b) National Insurance,

c) VAT and

d) National Minimum Wage.


For the purposes of this article, any amount paid by the customer over and above the obligatory price, whether it is called a service charge, tip or gratuity, and whether it is paid by cash, cheque or credit card, will be called a ‘tip’.


Income Tax (IT)

IT is unavoidable. Whatever arrangements are made, since the employee received the money by virtue of his employment, and not as a personal gift, it is subject to IT. Even if the customer would personally hands the cash to the waiter, who puts it all in his pocket without anyone else knowing about it, the money received is liable to IT.


National Insurance (NI)

In order for the payment to employees of tronc monies to be exempt from NI, the following conditions must be complied with:

1.    The tip must be discretionary, i.e. the customer has the choice of whether to pay it or not.

2.    The tip is paid directly from the customer to the employee, without going through the hands of the employer OR

3.    Even if it does not go directly from the customer to the employee, it goes through a troncmaster who allocates the troncs to the employees.



Tips that are genuinely freely given are outside the scope of VAT, whether included in the bill or not, whether passed on to staff or not, and whether paid by cash, cheque or credit card. If customers are required to pay the tip, then it is standard rated.


National Minimum Wage (NMW)

This is a legal right of an employee, regardless of the contract. To count for NMW purposes, the payment must go through the employer’s payroll.


To elaborate on condition 3 above:

1.    Condition 3 means that the employer must not decide which employee will get money, and how much each one will get. Therefore these decisions must be genuinely made by a troncmaster who is not an official of the employer (e.g. partner of the business or director of the company), or made by a staff committee.

2.    Even if the employer retains a percentage of the total tips collected, e.g. to cover expenses, this does not contravene condition 3.

3.    In order to comply with condition 3, the employer is allowed to appoint the troncmaster, but the troncmaster must independently make his own decisions.


Business Tax Tip

If you pay for your employees’ business expenses, make sure you have a “dispensation” from your tax inspector. If you don’t, you have to report all the expenses you have paid for on the employees’ P11Ds and the employees then have to make a claim for tax relief.