The numbers for the hospitality sector are stacking up, and not in a good way.
From April 2026, the National Living Wage is jumping to £12.71 an hour. That’s a 4.1% increase for workers aged 21 and over, with even bigger hikes for younger staff. Meanwhile, Employer National Insurance contributions rose to 15% back in April 2025, and the threshold at which you start paying dropped from £9,100 to £5,000 per year. The latest budget has seen these rates frozen, but with increasing wages, it means that employers will be facing additional NIC.
Put simply, every employee is costing you more. Much more.
For hospitality operators already dealing with tight margins and rising food and energy costs, this feels like another kick when you’re down. But here’s something that might help – and it’s been sitting there all along.
The tronc scheme advantage
A properly set-up tronc scheme could save your business thousands in National Insurance contributions every year, not through clever accounting tricks or tax avoidance, but through a legitimate HMRC-approved arrangement that’s been around since the 1990s.
If you aren’t using a tronc scheme, you are paying unnecessary tax in the form of Employers’ National Insurance.
Here’s how it works. When tips and service charges are distributed through a compliant tronc scheme managed by an independent Troncmaster, they become exempt from Employers’ NIC. Not reduced. Exempt.
With Employer NI now at 15%, that’s a significant saving on every pound of tips you distribute. And with card payments now the norm, most tips are ending up in your bank account rather than staying as cash in the jar.
Why this matters more than ever
Let’s say your restaurant takes £100,000 in discretionary service charges and tips annually. If you’re paying that through your normal payroll without a tronc, you’re liable for 15% Employer NI on that amount. That’s £15,000 going straight to HMRC.
With a tronc scheme, that £15,000 stays in your business. Also, because no NI is due on the tips, your staff get to save the 8% Employees’ NIC too.
Now factor in the wage increases. A full-time employee on minimum wage will cost you an extra £977 per year in gross pay from April 2026. Add to that the increased NI liability because wages are rising while thresholds stay frozen, and your payroll costs are climbing fast.
A tronc scheme won’t magically remove all these increases, but it can meaningfully offset them – especially for businesses where tips and service charges represent a decent chunk of staff rewards. But remember, staff must still be paid at least the National Minimum Wage.
The staff retention bonus
There’s another benefit that doesn’t show up on a spreadsheet but matters just as much. Staff who know they’re getting the tips they are due, distributed fairly and transparently, tend to stick around longer.
Replacing a team member costs around £2,000 when you factor in recruitment, training, and lost productivity. If a proper tronc scheme helps you retain just three staff members a year, that’s another £6,000 saved.
Happy staff who trust they’re being treated fairly also provide better service. Better service means better tips. It’s a virtuous circle.
The compliance piece
Since October 2024, the Employment (Allocation of Tips) Act has made fair distribution of tips a legal requirement. You need to:
- Distribute 100% of tips to staff (minus income tax)
- Pay them within one month after the tip was collected
- Have a written policy in place
- Keep proper records
A tronc scheme helps you tick all these boxes while saving money at the same time. It’s not just about tax efficiency anymore – it’s about compliance.
What makes a tronc work
The key is independence. Your Troncmaster (the person who decides how tips are allocated) can be an employee, but not a company owner, director or anyone with hiring responsibilities. It can be a third-party Troncmaster service, as they are truly independent.
The reason this is important is that it is the separation from employment that gives you the NI exemption. The employer doesn’t control the distribution, so HMRC doesn’t treat it as employer-paid income for National Insurance purposes. Income tax still applies, but NI doesn’t.
You also need proper systems in place – collecting the tips, recording them, allocating them fairly according to agreed rules, and reporting everything correctly to HMRC. This is where many businesses trip up.
A tronc scheme isn’t a silver bullet for all your cost pressures. Your base wage costs are still going up, and you’ll still need to find ways to manage that.
But for hospitality businesses where tips and service charges form a meaningful part of staff income, a tronc can make a genuine difference, and the savings add up quickly.
The trick is getting it set up properly. It is easy to trip up and make a trick scheme non-compliant, and if it doesn’t meet HMRC’s rules, this could cost you more in the long run when the HMRC inspector comes knocking.
Making it work for your business
If you’re not using a tronc scheme and you’re distributing tips through your payroll, you’re leaving money on the table. With the cost pressures facing hospitality right now, that’s money you can’t afford to waste.
The setup process isn’t complicated, but it needs to be done right. You need to appoint a Troncmaster, establish clear allocation rules that your team agrees with, and integrate it with your payroll system.
Many hospitality operators use external tronc services to handle the admin and ensure everything stays compliant. Others manage it in-house with the right support from their payroll provider.
At Ascend Payroll, we have a sister company, Tips and Troncs, that provides independent third-party tronc services, either standalone or alongside payroll processing.
For our hospitality clients with a tronc scheme, we can set up and manage their tronc scheme, giving them tax savings without the admin headache. If your current payroll provider isn’t helping you get this right, maybe it’s time for a change.
After all, you’ve got enough to worry about without leaving thousands of pounds in unnecessary tax on the table.
