HMRC has clear rules about how TRONC schemes should be structured and operated. If your scheme doesn’t meet these requirements, you risk losing the employer NI exemption — and potentially face back-payment demands, interest, and penalties. Here’s everything you need to know.
The Legal Framework
HMRC’s position on TRONC is set out in the Employment Income Manual (EIM), specifically sections EIM16170 to EIM16220, and the CWG2 Employer Further Guide to PAYE and NICs. The Employment (Allocation of Tips) Act 2023 added further requirements around transparency and fairness.
The key principle: if tips are controlled by someone independent of the employer, they are not “earnings” for NI purposes. If the employer controls allocation, they are earnings — and employer NI is payable.
Core HMRC Requirements
1. Independent TroncMaster
The TRONC must be managed by a person who is independent of the employer. This person is called the TroncMaster. They can be an employee of the business (e.g. a head waiter), but they must have genuine autonomy over how tips are distributed. The employer cannot direct, override, or influence the TroncMaster’s decisions.
2. Separate PAYE Scheme
The TroncMaster must operate a separate PAYE scheme specifically for TRONC distributions. This is distinct from the employer’s main PAYE scheme. Income tax is deducted through this TRONC PAYE scheme, but because the TroncMaster (not the employer) makes the payments, no employer or employee NI is due.
3. No Employer Involvement in Distribution
HMRC is very clear: the employer must not decide who gets what, or influence the distribution rules. The TroncMaster sets the rules, decides the allocations, and manages the scheme. The employer’s role is limited to collecting the tips and handing them over to the TroncMaster.
What Counts as “Employer Involvement”?
- • The employer decides how much each employee receives
- • The employer instructs the TroncMaster to favour or exclude certain staff
- • The employer uses tips as a performance incentive or as part of the pay structure
- • The TroncMaster is in practice just rubber-stamping employer decisions
- • The employer withholds or redirects part of the TRONC pool
4. Record-Keeping Requirements
Both the employer and the TroncMaster must maintain comprehensive records:
- Total tips collected each period (daily, weekly, or monthly)
- A breakdown by source — cash tips, card tips, and service charges
- The distribution rule or formula used
- Individual amounts allocated to each employee
- The TroncMaster's identity and date of appointment
- Written confirmation of the TroncMaster's independence
- Any changes to distribution rules, with dates and reasons
- Employee acknowledgement of the scheme rules
5. The Employment (Allocation of Tips) Act 2023
This Act, which came into full force on 1 October 2024, added additional requirements:
- Employers must have a written policy on tip allocation
- Tips must be distributed fairly and transparently
- Employees have the right to request information about how tips are allocated
- Employers must not make deductions from tips (except for tax obligations)
- Tips must be distributed no later than the end of the month following the month of receipt
Common Mistakes That Risk Your NI Exemption
Appointing a TroncMaster who reports to the employer on distribution decisions
HMRC may rule the TRONC is not independent — employer NI becomes payable on all past distributions.
No written distribution policy or documentation
HMRC cannot verify compliance — may default to treating tips as earnings.
Using tips to supplement low wages or as a performance bonus
Tips become part of employment earnings — fully subject to NI.
Failing to operate a separate TRONC PAYE scheme
Tax and NI obligations not correctly managed — penalties and interest.
Not distributing tips within the required timeframe
Breach of the 2023 Act — employees can bring tribunal claims.
How Rocket Tronc Ensures Compliance
Rocket Tronc was built specifically to ensure your TRONC scheme meets every HMRC requirement:
- TroncMaster Mode — enforces independence by requiring TroncMaster approval for rule changes and distributions
- Automatic audit trail — every distribution, rule change, and override is timestamped and logged
- Compliance dashboard — real-time warnings if any aspect of your scheme is at risk
- Written policy generator — creates your TRONC policy document automatically
- Distribution records with full breakdown by employee, role, and hours
- Separate payroll export — TRONC amounts clearly separated for your TRONC PAYE scheme