This is not a proposal or a consultation. The Employment (Allocation of Tips) Act 2023 and its statutory Code of Practice came into force on 1 October 2024, and the deduction most operators ask about — a few per cent off card tips to cover the merchant fee — stopped being lawful that day. The arrangement survives in a lot of kitchens only because nobody revisited it when the manager who set it up left.
What counts as a tip the Act reaches
The Act covers qualifying tips, gratuities and service charges, and splits them by who controls the money rather than how the customer paid. An employer-received tip lands with the business — typically a card tip reaching the company account before anything is distributed. A worker-received tip is cash handed straight to a member of staff that the employer neither receives nor controls. The Code’s test is whether the employer receives the money, or exercises control or significant influence over how it is distributed. Cash, card and app are not the distinguishing factor; control is.
Qualifying tips must reach workers in full. Not net of card fees, not net of an admin charge, not net of breakages.
The deadline nobody diarises
Tips must be distributed no later than the end of the month following the month the customer paid them. The Code’s worked example is a tip paid on 23 June, distributed by 31 July at the latest. That is a hard date, and it catches sites running a quarterly or seasonal pot.
Alongside it sit three administrative obligations, and those are the ones that get tested. Where tips are paid more than occasionally and exceptionally, you must have a written tipping policy, available to all workers, covering how tips are accepted and allocated. You must keep a record, for three years from the date the tip was paid, of the amount received, the amount paid to each worker, and any amount handed to a troncmaster. And a worker may ask to see the records covering their own tips and the site’s total — once in any three-month period — with the employer required to produce them within four weeks.
Four weeks is not long enough to reconstruct a year of shift sheets from memory. The record has to exist before anyone asks, which is why this lands on the till rather than the office.
Where a tronc sits
A tronc is still allowed and still useful. The Code accepts allocation through an independent tronc operator, an external firm or an elected member of staff, and where the employer holds a reasonable belief that it operates independently and fairly, the fairness requirement is treated as met. The qualifier matters: once an employer knows a tronc is not operating fairly, a hands-off posture stops being a defence. HMRC’s E24 guidance separately covers when tronc payments can fall outside National Insurance contributions, and that generally turns on the employer not allocating the money directly or indirectly.
For fairness itself, the Code expects a clear and objective set of factors, which may include role, basic pay, hours worked, performance, seniority, length of service and customer intention, applied without unlawful discrimination. It prescribes no formula. Enforcement runs through the employment tribunal, and tribunals must take the Code into account.
What this means at the terminal
Three things, all data-modelling decisions rather than features.
A discretionary tip and a mandatory service charge have to be two different things in the record, not one line called “extra”. They behave differently for VAT: a service charge the customer is required to pay forms part of the consideration for the meal and is standard-rated, while a genuinely voluntary payment is outside the scope of VAT even when it appears on the card slip. Recording them together produces a VAT error and an allocation error from one shortcut.
Card tips entered at the terminal need to attach to the transaction and the shift, not a daily total, because factors like hours worked and role are only usable if the tip data carries the shift with it. Where staff take part-cash, part-card payments across one bill, the tip has to survive the split rather than attach to whichever tender closed the table.
And the export has to be a report, not a query somebody runs by hand. A worker is entitled to a statement of tips received at the place of business and tips paid to them, covering up to three years. Build it as a saved per-period export and the four-week deadline is a non-event. The discipline behind a balancing end-of-day cash-up is what makes the tip record defensible.
VAT on the food is 20% on catering, covering anything consumed on your premises and all hot takeaway food, while cold takeaway food is generally zero-rated unless it falls into an excepted category. So one order can carry a zero-rated item, a standard-rated item, a standard-rated service charge and an out-of-scope tip — four treatments on one slip, which is why the tip line cannot be free text.
What we will not tell you
What your allocation formula should be, or whether to operate a tronc. Those carry employment and payroll consequences and belong with your adviser. Nor are we your payroll system. What we will confirm before you buy is which of these records the system produces for your country and in what format.
Checked against the sources named above on 2026-09-20. Rules and platform terms change — confirm anything tax-related with a local accountant before you rely on it.
