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How can operating a tronc reduce National Insurance Contributions (NICs)?

One advantage of having a tronc system is that it can allow you to qualify for exemptions from National Insurance Contributions (NICs). The exemption applies to service charges, as well as to tips and other gratuities paid by customers on a payment card and distributed to staff. In comparison, you and your staff would pay a combined total of almost 26% more in NICs if you distributed these funds to your employees outside of a tronc scheme.

These exemptions are unique to the hospitality industry – no other business sector has the ability to legitimately reduce NICs paid by themselves and their employees to such an extent.

As an example, a hospitality business turning over £250,000 per annum could save in excess of £4,000 per year. If an employee is receiving £100 per week through a compliant tronc system, they will receive additional net pay of over £600 annually.

The rules for qualifying for the exemption from NICs can appear daunting as HMRC’s guidance on the subject is extensive. WMT cuts through the complexity to find a practical, pragmatic and commercial approach that benefits you and your staff.

Getting things wrong could be crippling for your business. Should HMRC discover that your tronc has been operated incorrectly, they will seek both employees and employers NICs from you, together with interest and penalties. For a business turning over £250,000 per annum this could easily result in a liability exceeding £30,000. This should not put you off setting up a tronc – take it more a cautionary tale and make sure you get expert advice when designing and managing a tronc system.

Do you still have questions? Get in touch with our hospitality services team to find out more about how they can help you.

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