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HMRC appeal over NMW tronc payments will affect few businesses

16 June 2008 by

Hospitality operators have been told not to panic, despite a successful appeal by the tax man on the use of non-cash tips to top-up earnings to meet the national minimum wage.

Although HM Revenue & Customs succeeded in overturning a key decision by an employment tribunal last September regarding staff wages at private members' club Annabels, tax experts have reassured businesses it will have a limited impact.

The case, involving the Mayfair club, looked at whether or not tips paid to employees via a pooled "tronc" system counted towards the national minimum wage (NMW).

HMRC claimed some workers at Annabels had not received their NMW entitlement because money from tips had been paid to them directly by the troncmaster, rather than the employer, and could not therefore be used in this way.

This interpretation of tax law was upheld by the employment appeal tribunal's decision last week, although Annabels is set to launch an appeal of its own.

However, Peter Davies from business advisory firm Vantis, which represented Annabels, said the decision would not have any major ramifications.

"The majority of businesses that deal with tronc will be unaffected by this decision, as they will not be running their tronc in this particular, old-fashioned way," he told Caterersearch.

In most businesses, the troncmaster merely informs the employer how much to pay out to staff in tips before the payment is made through the payroll. This remains fully compliant with tax law, Davies said

"Any company that is still using the old-fashioned approach to tronc and passing money physically to a troncmaster to distribute to staff should take steps to rectify this immediately," he added.

However, Mark Groom, director, PricewaterhouseCoopers LLP, added: "There is an outside chance that the ruling could be applied more widely than this, to arrangements where employers make such payments directly from their own bank accounts to employees, following the instructions of a troncmaster.

"HM Revenue & Customs is understood to be considering the position further, before issuing revised guidance if necessary."

Time for the industry to come clean over tipping>>

Tronc - guidelines on tips and tipping>>

Taxman pounces on swipe-card subsidised staff meals>>

Trade union Unite joins forces with newspaper over tips>>

Tips can count towards minimum wage, finds tribunal>>

By Chris Druce

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