Tronc climbdown hailed as a victory

The Revenue's U-turn over the tax payable on staff tips has been hailed as a victory for common sense but has triggered renewed calls for compensation from businesses previously targeted.

In new E24 guidelines issued last week, HM Revenue & Customs (HMRC) recognised that its interpretation of tax payable on tronc was wrong.

Under the new guidelines, employers may now mention that a tronc exists without incurring national insurance (NI) charges, although any amount that has been contractually guaranteed to staff will be liable for tax. The employer may now advise the troncmaster regarding the administration of tronc as long as his final decision is made freely. Tronc can also be distributed through a one-payroll system and can be used to top up rates of pay that are below the minimum wage without incurring NI.

Peter Davies, consultant at tax adviser Vantis, said: "The new guidelines recognise that what industry thought was right all along was right. It's a complete climbdown from what the HMRC had said before."

But HMRC is still refusing to accept liability and compensate businesses for NI demands which caused many operators to go bust. A spokesman said: "The revised opinion about the NI liability of tips follows further legal advice and is not an error on the part of HMRC and so compensation is not appropriate."

Restaurateur Stephen Glaister's business was forced into liquidation in 2004 after a tax demand from HMRC for £101,000, which under the new guidelines would have been deemed incorrect.

He told Caterer: "That tax demand made my business insolvent and I was forced to go into liquidation. I'm outraged that they think they're not accountable for their actions. They destroyed my business. How can the organisation be protected even after they admitted they were wrong?"

Davies said HMRC's new stance called into question the legal advice the Revenue was originally given. "It seems unfair that HMRC is able to pass the buck for putting companies out of business to another unspecified third party," he said. "Any other business would be liable for compensation even if it had acted in good faith."

New tronc guidelines

All money paid through the employer's payroll and identified on payslips counts towards earnings for the minimum wage

National insurance is due only if a specific contractual entitlement exists in respect of gratuities, or if an employer has directly or indirectly allocated the gratuities to its employees.

Discretionary service charges and non-cash tips still belong to the business and can be retained for credit card charges and breakages. The remainder constitutes the tronc and is therefore not subject to national insurance contributions.

\* For more information, visit www.caterersearch.com/tronc.

By Emily Manson

E-mail your comments to Emily Manson](mailto:emily.manson@rbi.co.uk?subject=Tronc climbdown hailed as a victory) here.

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