1 Hotel cover.indd - Nicola Cottam

Tips and troncs
Arguably the biggest development for the hospitality industry in 2006 was the resolution of the long-running
dispute over the National Insurance Contributions (NICs) and National Minimum Wage (NMW) position for
tips and troncs. HM Revenue & Customs’ (HMRC) guidance material (known as E24) reached what was effectively
its fourth edition in three years and in doing so, accepted the arguments put forward by the British Hospitality
Association, as advised by PricewaterhouseCoopers LLP. Most businesses that use troncs will benefit now that
HMRC have agreed issues including:
1. Troncs are outside NICs unless management is actively involved in the allocation of the monies;
2. Retaining some of the tronc to cover, for example, credit card processing costs does not lose the NIC exemption;
3. Employees can be promised participation in the tronc in their contract without losing the NIC exemption
(unless and to the extent that they are promised a minimum tronc amount);
4. Using an employer-recommended system for tronc allocation or the employer’s administrative systems for
paying the tronc monies does not lose the NIC exemption, provided it is the employees’ choice to do so;
5. Tronc monies can be used to make up NMW requirements, provided payments are made through the employer’s
payroll, and may still qualify for NIC exemption.
These agreements put an end to the long-running disputes under HMRC’s ‘Operation Gourmet’, with many businesses
affected now in a position to recover overpaid tax and NICs and, in some cases, claim for costs incurred.
Rumblings on hotels allowances
Key Issues: Legislation: Tax
The hotel industry has benefited since the 1970s from the 4% capital allowance on ‘qualifying hotels’. Placing
restrictions on which buildings qualified was intended to focus the relief on ‘traditional hotels’ – interpreted as
those establishments that provided breakfasts and evening meals.
Current practices in the industry differ widely from those of the 1970s, as exemplified by the rise in budget hotels
and apart-hotels, fuelled in part by the much wider restaurant market. This has led many individual hotels and
chains to either not provide catering facilities or to outsource them, meaning that an increasing proportion of
the hotel sector no longer conforms to the original conditions set for the hotels allowance.
HMRC is looking carefully at this issue, which has led to a number of challenges and not just on the provision
of meals. Questions have also been raised about the frequency of linen changes, no children policies, minimum
two night stays and meals only being available to guests. It is not just new claims that are being affected. Existing
claims can also be overturned with a cessation of allowances and possibly a reclaim of allowances granted for
recent years.
March 2007 Hotel Report Guide to UK Hotels l © William Reed Publishing 40