Tipping in 2025: Who Gets What?
Posted on 4th March 2025 at 13:12
Ever wondered where your tip actually goes when you leave it at a restaurant, bar, or even your local hairdresser? You want to reward great service, but does the person who served you actually get the full amount? Well, the answer depends on how you tip.
The Big Question: Cash or Card?
Tipping in cash and tipping via card can have very different outcomes. Here’s why:
Cash Tips – Simple and direct. The waiter, bartender, or stylist gets the money straight away. They are responsible for paying income tax on it, but there are no deductions for National Insurance (NICs), either employer (ER NIC) or employee (EE NIC).
Card Tips – Once you add a tip on your credit or debit card, the money goes into the business’s account first. From there, it is distributed – but not before a few deductions.
The card company takes a small slice (transaction fees).
The employer may have historically able to take a cut before passing it on, but the legislation that comes into effect now prohibits this.
Employer NICs (ER NIC) and Employee NICs (EE NIC) may be deducted, depending on how the tip is allocated.
Income tax is deducted via payroll before the worker gets their share.
To Tronc or Not to Tronc?
Many businesses use a system called a tronc to fairly distribute tips. A Troncmaster (usually a senior staff member or an independent party) manages a separate payroll scheme just for tips. Here’s why this matters:
If tips are distributed through a tronc, they are subject to income tax but not NICs. This means the workers get more of the tip.
If the employer directly allocates the tips, both income tax and NICs (employer and employee) apply, meaning a smaller take-home amount.
Key Takeaways:
Under an employer-allocated system, the worker takes home £69.50 from a £100 tip.
Under a tronc system, the worker takes home £77.50, meaning £8 more per £100 tip.
The employer also pays £15 in NICs when allocating tips directly, but this is a separate cost from the tip itself.
Tipping in Different Industries
Tipping isn’t just for waiters – it’s common in many service roles. But do all tips work the same way?
Waiting Staff – The classic example. If tips go through payroll, deductions apply. If they are in a tronc, they avoid NICs.
Hairdressers & Barbers – More likely to receive tips in cash, meaning they only pay income tax (if declared!).
Taxi Drivers – Often rely on cash tips, so their take-home is higher compared to card tips that could be subject to deductions.
So, What’s the Best Way to Tip?
If you want the person serving you to get the biggest slice of your tip:
Cash is King! It avoids extra deductions, and they get more of what you give.
Ask how tips are distributed. If a business uses a tronc, card tips are still a good option.
Be aware of service charges. These are often added automatically but don’t always go to the staff.
Final Thoughts
Tipping is about rewarding great service, but the way you do it matters. Next time you leave a tip, think about whether you want to maximise what the worker takes home.
Need help navigating payroll, NICs, and tronc schemes? Property Tax Advice can help!
📞01249 816810
📧info@property-tax-advice-co.uk
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