Tips, service charges and tronc
Since 1/10/2024 the law has required employers to pass all tips, gratuities and service charges to workers in full, with no deductions other than tax. You need a written policy explaining how tips are shared out, and you must keep records. Staff can ask to see them. This applies to card tips and service charges, and to cash tips where the business has any control over how they are shared out. Cash a customer hands straight to a worker, with no involvement from the business, falls outside the law.
How tips are paid affects National Insurance. When a properly run tronc decides the share out, rather than the business owner, payments from voluntary tips and optional service charges are usually free of both employee and employer National Insurance. A compulsory service charge attracts National Insurance even when it goes through a tronc. Income tax still applies through PAYE. If the employer controls the allocation, National Insurance is normally due. Getting this wrong can mean an unexpected bill after an HMRC review, so we help you set up the arrangement properly and run it through payroll.
Tips also cannot be used to top up pay to the National Minimum Wage. Your basic pay has to meet the minimum on its own.
VAT on food and drink
VAT is where many restaurants overpay or underpay without realising. Food and drink served to eat in is standard rated. Hot takeaway food is also standard rated. Most cold takeaway food is zero rated, but crisps, sweets, soft drinks and alcohol are standard rated even when taken away. A cafe on North End Road selling sandwiches, coffee and cakes to both sit in and take out needs its till set up to tell the difference.
Service charges need care too. A genuinely optional service charge is outside the scope of VAT. A compulsory charge added to every bill is part of the price and VAT is due on it. Delivery apps add another layer, with commission invoices and payouts that need matching to your sales.
We review how your menu and till categories map to VAT rates, prepare your VAT returns under Making Tax Digital and look at whether a different VAT scheme might suit you.
What is included
- Annual accounts and corporation tax or self assessment
- VAT returns with food and drink rate checks
- Weekly or monthly payroll including tronc
- Written tips policy guidance and record keeping
- Stock valuation and gross profit reporting
- Monthly bookkeeping from till and supplier data
- Capital allowances on fit out and equipment
- Due diligence when buying a restaurant
Payroll for kitchen and front of house staff
Hospitality payroll is rarely simple. Hours change week to week, staff join and leave often, and many are part time or students. Each one needs to be paid correctly, have pension auto enrolment checked and be reported to HMRC in real time every time they are paid.
Employer National Insurance is 15% on earnings above the secondary threshold, which makes staffing costs a big part of your budget. Most small employers can claim the Employment Allowance of £10,500 a year against their bill. We run weekly or monthly payroll, handle tronc payments within it, and deal with starters, leavers, sick pay and holiday pay.
- Weekly or monthly payslips and RTI submissions
- Tronc payments processed through payroll
- Pension auto enrolment duties
- Holiday pay for irregular hours workers
Stock, gross profit and wastage
Food and drink costs move fast. A good restaurant knows its gross profit on food and on drink separately, and spots quickly when one slips. That might mean wastage, portion sizes creeping up, supplier prices rising or stock walking out the back door.
We help you set up regular stock counts and record them properly at the year end, then produce management accounts that show your margins month by month. For a busy site on Fulham Road or King's Road, catching a falling margin within a few weeks rather than at the year end can make a real difference.
Opening, buying or expanding a restaurant
Fitting out a restaurant is expensive. Kitchen equipment, furniture and some building work can qualify for capital allowances, which reduce your taxable profit. Other costs, such as decoration that forms part of the building, may not. Getting the split right at the start saves arguments with HMRC later.
If you are buying an existing business around Fulham Broadway or New King's Road, we can look at the accounts before you commit, check the VAT and payroll history, and help you choose between buying the company or just its assets. We also help new restaurants set up a limited company, register for VAT and payroll, and build a cash flow forecast for the first year.
How we work with hospitality clients
Restaurant owners rarely have time for paperwork during service. We work around you, collecting till reports, supplier invoices and delivery app statements online. Bookkeeping can be done monthly so your VAT and management figures are always ready.
We start with a free review of your current setup and agree a fixed fee before any work begins. Our clients include cafes, bars and restaurants across Fulham, Parsons Green, Chelsea and Putney.
Who this suits
- Independent restaurants and bistros
- Cafes and coffee shops with eat in and takeaway sales
- Bars and pubs with food
- Takeaways and delivery led kitchens
- Owners opening a first or second site
Common questions
What is a tronc and do I need one?
A tronc is an arrangement where someone other than the business owner, called a troncmaster, decides how tips and service charges are shared among staff. You do not have to have one, but a properly run tronc usually means no National Insurance is due on payments of voluntary tips and optional service charges. Income tax still applies through payroll.
Do I charge VAT on takeaway food?
Hot takeaway food is standard rated. Most cold takeaway food is zero rated, but items such as crisps, confectionery, soft drinks and alcohol are standard rated. Food eaten on your premises is standard rated whether it is hot or cold.
Is a service charge subject to VAT?
If the service charge is truly optional and the customer can refuse it, it is outside the scope of VAT. If it is compulsory, it counts as part of the price and VAT is due on it.
Can I keep part of the tips to cover card fees?
No. Under the tips law that came in on 1/10/2024, employers must pass on all tips in full and cannot deduct card processing fees. The only deductions allowed are for tax.
Can I count tips towards the minimum wage?
No. Tips, gratuities and service charges cannot be used to meet National Minimum Wage or National Living Wage. Basic pay must meet the minimum by itself.
What restaurant costs can I claim against tax?
Food and drink stock, staff wages, rent, utilities, cleaning, card fees and delivery app commission are normal running costs. Kitchen equipment and furniture can usually be claimed through capital allowances. Building works are more complicated and need checking.
How often should a restaurant do stock counts?
Many restaurants count weekly or monthly, at least for high value items like meat, fish and drinks. Regular counts let you work out true gross profit and spot wastage early. A full count at the year end is needed for the accounts.