NI Tax on Tips: Tronc, Employer Reporting, and State Pension Age

National Insurance on tips depends on who controls the money. If the employer receives, holds, or decides how to distribute a tip, Class 1 National Insurance is due: 15% from the employer and 8% from the employee for the 2026-to-2027 tax year, within the usual thresholds.¹ If a customer hands cash directly to a worker, or if tips are distributed through a properly run tronc, no NI is due on either side. Income tax is a separate matter and applies to tips either way.

When Tips Trigger National Insurance

Class 1 NI applies whenever an employer receives, holds, or controls the distribution of tip money.² The clearest example is card tips. When a customer adds a gratuity to a card payment, the money lands in the business’s bank account before it reaches anyone else, so HMRC treats it as earnings paid by the employer. Mandatory service charges the business collects and later shares out work the same way.

Once tips count as employer-paid earnings, the standard NI rules apply. For 2026-27, employers pay 15% on earnings above the secondary threshold of £96 per week (£5,000 per year).¹ Employees pay 8% on earnings between the primary threshold of £242 per week and the upper earnings limit of £967 per week, and 2% above that.³ The employee share is deducted from pay; the employer’s 15% is an added cost on top.

When Tips Escape National Insurance

Cash tips passed straight from a customer to a worker sit outside NI entirely, because the employer never touches the money. That exemption ends the moment the employer gets involved. If cash is collected into a central pot and the business decides who gets what, HMRC treats those payments as employer-controlled and NI becomes due.

Cash tips still count as taxable income for the worker, even though NI does not apply. That is an income tax question rather than an NI one, and it does not change the NI position.

Using a Tronc to Remove the NI Bill

A tronc is a pooling arrangement run by someone other than the employer. The person in charge, the troncmaster, takes independent control of the tip fund. When a tronc is set up and operated properly, tips distributed through it are not treated as employer payments, and no NI is due from either side.⁴

Two conditions have to hold. The troncmaster must be distributing money that was not originally paid to the employer, and the employer must not be paying the money to employees directly or indirectly. And the employer must not decide, directly or indirectly, how the tips are split.⁴ If a manager tells the troncmaster how to divide the pool, that alone can void the exemption and leave the business facing backdated NI.

The troncmaster cannot be the employer, a business partner, or a company director. If someone in that kind of role runs the tronc, HMRC treats the payments as employer-made and full NI applies.⁴ In practice, most troncs appoint a senior member of the waiting team or a supervisor without hiring and firing authority.

Income Tax Still Runs Through the Tronc

Removing the NI charge does not remove income tax. The troncmaster has to set up a separate PAYE scheme and deduct income tax from every payment before it reaches workers. The scheme is independent of the employer’s payroll, with its own records, even if it uses the same payroll software as a processing tool.⁴ The troncmaster is personally liable for any failure to deduct correctly.

What the Numbers Look Like

Take a restaurant distributing £10,000 a month in card tips. Running them through the employer’s payroll costs the business an extra £1,500 in employer NI and takes £800 collectively from workers’ pay in employee NI. A valid tronc removes both. Over a year, that is £27,600 in combined savings on a fairly modest tip volume, which is why troncs are so common in hospitality.

How Employers Report and Pay NI on Tips

Employer-controlled tips that attract NI go through the normal payroll cycle. They are reported to HMRC on a Full Payment Submission alongside regular wages, filed on or before the day employees are paid. The NI itself is due by the 22nd of the following tax month if paying electronically, or the 19th if paying by post.⁵ Missing these dates brings interest and late payment penalties.

Records need to be tidy. Each employee’s file should show their NI number, current tax code, and a breakdown separating base pay from employer-distributed tips. Card tip volumes swing week to week, and HMRC may query returns where reported tip income moves sharply without explanation.

Workers Past State Pension Age

Employees who have reached State Pension age stop paying Class 1 NI on all earnings, tips included.⁶ The worker needs to show the employer proof of age, such as a birth certificate or passport, or request a certificate of age exception from HMRC. Income tax still applies to their tips as normal. The employer’s own 15% NI on employer-distributed tips to these workers continues.

Fixing Mistakes on Past Submissions

If tips were reported incorrectly and the error is in pay or deduction amounts within the current tax year, the fix is to update the year-to-date figures on the next regular Full Payment Submission. An incorrect payment date needs a separate corrected FPS by the 19th of the tax month after the original, with “H – correction to earlier submission” in the late reporting reason field.⁷ For mistakes in earlier tax years, back to 6 April 2020, a fresh FPS with corrected year-to-date figures can be submitted. Uncorrected errors compound across pay periods because HMRC works out NI from the figures on file, so it pays to catch them quickly.

1
GOV.UK. Rates and Thresholds for Employers 2026 to 2027
2
GOV.UK. Tips at Work – Tips and Tax
3
GOV.UK. National Insurance – How Much You Pay
4
GOV.UK. Guidance on Tips, Gratuities, Service Charges and Troncs
5
GOV.UK. Reporting to HMRC: FPS
6
GOV.UK. National Insurance and Tax After State Pension Age – Stopping Paying National Insurance
7
GOV.UK. You Made a Mistake in Your FPS or EPS