Do you pay National Insurance on tips? Card tips, service charges and troncs, with one restaurant's year worked

Yes, on most tips that pass through the business. HMRC's guidance on tips says employer and employee National Insurance are both due where the employer pays a tip to staff or decides who gets what, and that contributions are always due on a mandatory service charge. None is due on cash a customer hands to a worker, or on tips shared out by a troncmaster the employer does not direct.

Income tax is due on every tip. The question HMRC asks about National Insurance is narrower: who paid the money over, and who chose the split.

The two conditions

The guidance, last updated on 18 July 2025, says a payment of a gratuity is exempt from National Insurance if it meets either of two conditions:

• the employer does not pay it to the worker, directly or indirectly, and it is not money that was first paid to the employer
• the employer does not allocate it, directly or indirectly

To allocate is to decide who receives what amount. A card tip lands in the employer's bank account, so it fails the first condition at once. It can only escape National Insurance under the second.

Payment by payment

A service charge is voluntary only if the customer is clearly told it is optional, in print and by staff. Where the customer has to pay it, HMRC treats it as part of the price of the meal.

What makes a troncmaster independent

HMRC's examples draw the line in four places.

• An owner, partner or director as troncmaster. The payments count as made by the employer and go through the employer's payroll.
• A points system the owner devised. If the troncmaster is required to use it, the employer is allocating indirectly, and National Insurance is due on everything the tronc pays. If the troncmaster or a staff committee adopts the same system freely, none is due.
• A guaranteed minimum. Where the employer promises staff a set amount from tips, any top-up it pays is not a tip, and National Insurance is due on it.
• A suggestion. An owner may suggest who should be in the tronc. That alone is not allocating, as long as the troncmaster still decides how much each person gets.

The troncmaster is personally responsible for PAYE on what the tronc pays out. The employer must tell HMRC who the troncmaster is, and the tronc needs a PAYE scheme of its own. The employer's payroll software can run it, but the records must be kept apart.

One restaurant's year, worked

A restaurant takes £48,000 a year in card tips and a voluntary service charge. Twelve staff share it equally, £4,000 each. All are 21 or over, and each is paid more than £1,048 a month in wages, the point at which employee contributions start.

The 2026/27 rates on GOV.UK are 15% for the employer on pay above £417 a month, and 8% for the employee on pay between £1,048 and £4,189 a month.

The difference is £7,200 + £3,840 = £11,040 a year. The business keeps £7,200 of it and each worker £320. The tax is the same either way.

Two things can shrink the employer's side:

1. The Employment Allowance. It takes up to £10,500 off an eligible employer's National Insurance for the year. A small venue whose wage bill does not use the whole allowance pays less than £7,200 on the tips, or nothing.
2. Staff under 21. The employer rate for a worker under 21 is 0% on pay up to £4,189 a month. The worker's own 8% still applies.

A mandatory charge on one bill

A table's bill is £80, and the menu says a 12.5% service charge will be added whether the customer agrees or not. That is £10.

• VAT: a compulsory charge is standard rated. If the venue's prices include VAT, so does the charge: £10 ÷ 6 = £1.67.
• Left for staff: £10 − £1.67 = £8.33. Section 27C of the Employment Rights Act 1996 says the part of a payment that is VAT is not a tip.
• Employer National Insurance at 15% of £8.33: £1.25, paid on top.

Make the same charge optional, and say so clearly, and the whole £10 is outside VAT. Shared out by an independent troncmaster, it carries no National Insurance either.

Three rules that stay the same

• The minimum wage. HMRC's guidance says tips and service charges have not counted towards National Minimum Wage pay since 1 October 2009.
• The tips Act. Since 1 October 2024 every tip the employer receives or controls must go to workers. HMRC says that law does not change how tips are assessed for tax and National Insurance. Our guide to the tips law and how a tronc fits covers the duties.
• The deadline. Tips must reach staff by the end of the month after the customer paid. December's are due by 31 January 2027, as our Christmas and New Year guide sets out.

What to do this month

1. List each kind of payment the venue takes and find its row in the table.
2. Read the wording on the menu and the bill. If the service charge is meant to be optional, it has to say so.
3. If there is a tronc, write down who decides the split. If the honest answer is the owner, the tips belong on the employer's payroll with National Insurance.
4. Tell HMRC who the troncmaster is, and again when that person changes.
5. Keep tips out of the wage figures. Our rota cost calculator prices wages alone, and the new starter checklist covers adding a new person to the tips allocation.

Overlyft can set up an AI assistant that keeps a venue's tips ledger and prepares the monthly allocation for the owner or troncmaster to approve.

This is general information, not legal or tax advice. HMRC's employer helpline can confirm how the rules apply to your arrangements.