The essential rules in plain English

The tipping legislation took effect on 1 October 2024. Qualifying tips must be allocated fairly and passed to workers without unauthorised deductions. Processing charges and administration costs are not a reason to reduce the tip pot. Applicable deductions such as income tax are a different matter. The government's statutory code explains the framework.

In practical terms, do not tell staff that they receive the customer's tip “less the card fee”. Budget processing costs as a business expense and keep them distinguishable from amounts recorded for staff allocation.

The other question is who controls the money. Card tips received by the employer are covered. Employer-controlled cash tips can also be covered, so moving tips into a jar does not automatically change the rules. Acas explains the distinction between employer-controlled tips and tips workers receive directly.

Map the money before changing the policy

Write out the actual route followed by a customer's payment. Does the processor settle everything into the business account? Does the till export the tip separately? Who prepares the allocation? Who runs payroll? Who answers a worker's question about their share?

Do this for each payment route you use. A portable terminal, an online order, a service charge and a digital tipping app may produce different records. Avoid assuming the process is the same simply because the amounts end up on one spreadsheet.

This table is an operational checklist, not a complete specification of every statutory record. Its value is that it makes handovers between the manager, bookkeeper and payroll provider explicit.

Fair does not always mean an identical share

The statutory code says allocation should use clear, objective factors and consider the workers involved in providing the service. Equal shares are not the only possible approach. Hours, roles and other relevant factors can matter, but discriminatory allocation must be avoided. Where tips are more than occasional and exceptional, a written policy is required; distribution is due by the end of the following month. See the full code of practice.

For your own process, start by writing down the reasoning behind the method. Could a new starter understand it? Could a manager apply it consistently without making a fresh judgement every week? Would a kitchen worker and a front-of-house worker both know how the method treats their roles?

Avoid choosing a formula just because your spreadsheet already supports it. First decide what is appropriate for the business and workforce, then build the calculation around that decision. A technically correct formula can still implement a poorly considered policy.

Separate gross tips from processing charges

Suppose customers leave £300 in qualifying card tips over a period. For an illustrative cost check, assume processing those tips costs the business 1.5%, or £4.50. The gross amount recorded for allocation is still £300 before applicable tax deductions, rather than £295.50.

That example only isolates the processing cost attributable to the tips. Your actual merchant statement may combine the charges with fees on the underlying sales and apply transaction-level rounding. It is a bookkeeping illustration, not a provider tariff.

A common source of confusion is using the amount deposited by the processor as if it were the gross amount collected. Reconcile the statement rather than allowing the net deposit to determine what staff receive. Our card machine fees guide explains the different charges that may appear.

PAYE and National Insurance need a separate check

Fair distribution and tax treatment are related responsibilities, but complying with one does not settle the other. HMRC says the tipping legislation did not change how tips are assessed for tax and National Insurance. Its E24 guidance remains relevant.

Where employers pay tips to employees, PAYE must be operated. A tronc is a special arrangement for sharing tips, with responsibilities depending on how it is organised. Merely calling an account a tronc does not create an automatic National Insurance exemption. HMRC considers who determines allocation; mandatory service charges distributed to employees attract National Insurance. Check the detailed HMRC guidance on tips and troncs.

Ask your accountant or payroll provider to document the treatment for your setup. Give them the real facts: who receives the money, who decides the shares, who makes the payment and whether the charge is genuinely optional. A description that leaves out the owner's involvement can lead to the wrong advice.

Do not build your process around an old payroll form or a social-media “tax hack”. Get current instructions for registration, reporting and payment from the person handling the payroll. Keep their explanation alongside your internal procedure so a replacement bookkeeper is not left guessing.

Keep records staff can understand

The statutory code requires tipping records to be kept for three years and gives workers rights to request information. Read its transparency and record-keeping provisions when designing your process.

Alongside the required records, maintain a practical reconciliation file. Use a consistent period, identify the location and explain adjustments. If a transaction was refunded or a report was corrected, keep the reference that connects the adjustment to the original entry.

Limit access appropriately. A manager may need the gross tip totals while a payroll specialist needs employee-level details. Circulating an unrestricted payroll workbook to the entire team is not necessary to explain how the allocation method works.

Build a regular check into your routine. Review one period from terminal report through to staff payment and ask whether another person could reproduce the calculation. If the answer depends on information only the owner remembers, the process needs improving.

Prepare for staff questions and changes

Give workers a clear contact for questions. Record the query, the relevant period and how it was resolved. An explanation that is easy to retrieve helps prevent the same misunderstanding returning every payday.

Revisit the practical arrangements when your staffing, locations or service model changes. Opening a takeaway counter, adding agency workers or switching POS software can expose gaps in a process that worked for a smaller team.

As checked on 10 September 2026, Acas describes further consultation and policy-review changes as forthcoming by the end of 2026, rather than already in effect. Check its current tipping-law update before revising your policy. Avoid treating a proposed or future requirement as if it already applies.

Choose payment equipment that supports the process

A card machine should make the records easier to produce. Ask for a demonstration of separate tip reporting, exports, refund references and staff permissions. Confirm these features on the actual device and plan being quoted.

For the customer-facing setup, use our practical card-machine tipping guide. If you are replacing equipment, compare portable machines and smart POS systems against the needs of your team, rather than choosing solely on the headline rate.

Questions owners often ask

Can I deduct the card fee from a qualifying tip?

No. Keep the processing cost separate from the gross tip allocation. Applicable tax deductions are a separate issue, as explained above.

Does a tronc automatically remove National Insurance?

No. The actual allocation and payment arrangements matter. Ask your payroll adviser to assess the arrangement against HMRC's conditions.

Do I need an expensive terminal to handle tips properly?

The price of the terminal does not determine whether your process works. Reliable records, suitable software and a clear allocation and payroll procedure matter more. Compare card machines after identifying those requirements.

What is the most useful first step?

Take one completed trading period and trace the money from customer payments to staff payments. List anything you cannot explain, then resolve those gaps with your bookkeeper, payroll provider and payment provider before changing the system.