Tronc for very small restaurant

Tronc for very small restaurant

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I have a client, husband and wife who run a very small restaurant via a limited company, husband is director and sole shareholder

They have one commis chef and a part time waitress working for them, the restaurant has optional service charge of 12.5% which in practice all clients pay.

The issue is who should be the Troncmaster, my understanding is that if either husband or wife become the Tronc master, then its as if the company is paying the service charge and controlling payments and thus NIC has to be accounted for.

However the commis chef and part time waitress will be leaving shortly and its likely that whoever is taken on by my client in unlikely to stay for more than a few months

My clients having talked with another local restauranteur have been told that one of them can be the troncmaster, but I have pointed out that NIC would then need to be paid aswell.

My question is that is there any way of dealing with this isuue so as to avoid having to pay NIC on the payments of service charge to the employees

Any guidance would be appreciated

Replies (6)

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By andrew.hyde
12th Aug 2014 13:17

Read this first

Read the HMRC booklet first

http://www.hmrc.gov.uk/manuals/pommanual/attachments/e24.pdf

Your problem is always going to be proving that the employer is not allocating the tronc monies. If the troncmaster also controls the business, that's virtually impossible.  It's not quite impossible if the wife is troncmaster, but she would have to have a role in the business that is clearly not management,  as a matter of fact not just job title.

 

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By Peter Davies
15th Sep 2014 16:19

You can have a tronc, and you can act as the troncmaster, but as Director and controlling shareholder you won't be able to get away from the question of "directly allocating" so NICs will be due. There is some legal precedent on this - see Figael v Fox. Personally I would think it highly unlikely that HMRC would accept the wife as an acceptable troncmaster for the purposes of the NIC legislation.

You may wish to consider an external troncmaster - google "troncmaster service". Downside of an external provider is that they will (obviously) charge for their services, but if this is less than the cost of NICs it may be worthwhile. Without a valid tronc your employees will also take home less pay than at any local competitors who have implemented an NI-free tronc.

 

 

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By DMGbus
17th Sep 2014 11:25

Avoid a Tronc, avoid NIC

E24 (2010) guidance includes the following most useful way how to avoid NIC costs and the adminstration of a tronc:

If customers give cash tips directly to employees or leave them on the table and individual employees keep them without any involvement from the employer, then PAYE does not apply.
It is the responsibility of the individual employee to advise HMRC of the amounts of money received. The tax will usually be recovered by an adjustment to the employee’s PAYE tax code.

PAYE must be operated on all tips paid by an employer to an employee. Responsibility for operating PAYE rests with the employer even if the employer delegates the task to an employee if there is a tronc operating. You can find further advice at section 6.

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By andrew.hyde
17th Sep 2014 11:10

Quite Correct

DMGbus is quite right, but there's still a problem with 'plastic' or cheque payments (anyone out there still use cheques?).

There was an ECJ case (Nerva) that effectively confirmed that these payments are the legal property of the employer.  So the employer can't duck the reasponsibility for these payments.

I suppose you can encourage customers to pay cash, but that might give the wrong message.

 

 

 Nerva and Ors v.UK

The European Court of Human Rights held that a ruling of the Court of Appeal that, with regard to statutory minimum remuneration, an employer was entitled to take into account tips for its staff which were paid via the employer by cheque or credit card, was not contrary to the waiters' right to peaceful enjoyment of their possessions pursuant to art1 of the First Protocol to the European Convention on Human Rights.

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By DMGbus
17th Sep 2014 11:24

Tips in cash, bill by card

A sensible way forward is for those customers who pay by card (or cheque) to pay their bill by card (or cheque) but pay the tip by cash direct to the waiter(ess).  That's what I do, the tip so far as I am concerned is nothing to do with the employer it is for the waiter(ess).

I have seen at least one instance, however, where the restaurant's card terminal asks the customer to say "yes" or "no" to a tip then (if "yes") type in the tip amount and the tip is then added to the bill amount charged to the card, thus an NIC charge will arise as the tip is "handled" by the employer.

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Replying to TomHerbert:
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By Peter Davies
03rd Oct 2014 08:25

There's no automatic charge to NICs on a tip paid by a card transaction - this is mistaken.

The NICs exemption (para 5, part X, schedule 3 Social Security Regulations 2001) is in two parts and a business only needs to satisfy one part to qualify. The first condition excludes payments which are not the employers money and have not passed through the employers hands, so this is your old-fashioned cash tip. But the second, alternative, condition is that provided the employer does not allocate the payment directly or indirectly to the employee then NICs is not due either.

So a tip paid a part of a card sale can still be exempt from NICs if it is distributed through a valid tronc arrangement as the second condition for exemption is met.

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