Author: Amit Roy

Tronc : Tips and service charges in Restaurant /Pub trade

HMRC has given its guidance in publication E24.

Tronc is special arrangement allowed by HMRC for catering trade to distribute tips received from customers.

Main takeaways from the guidance are as follows:

1- If tips are optional, no VAT is to be charged.

2- Income tax is to be deducted from tips in all circumstances.

3- NIC is not due on tips (extract from PAYE 72080), if :

A – Customers pay tips direct to employees and the employer is not involved; or

B – i) Customers pay voluntary service charges and / or tips to the employer; and

ii) The employer passes some or all of the charges / tips to a tronc; and

iii) The employer is not involved in deciding how much each tronc member receives from the tronc.

4- Employers must pay their staff at least National minimum wage in addition to tips.

In effect Tronc system saves National Insurance Contributions of both employer and employee.

Also , see recent ICAEW Webinar

Key takeaways from ICAEW Webnair:

  • Its usual to maintain around one month of reserve in Tronc.
  • We need inform HMRC when a new Tronc scheme is set up and who is the Troncmaster. Ensure to mention in the letter to request HMRC not to open another PAYE Scheme.
  • Every time Troncmaster changes we should inform HMRC.
  • Tronc is not subject to auto-enrollment pensions.
  • Some restaurant put cover charges on the bill. These are mandatory so VAT is charged on these plus not part of Tronc system.
  • Service charge belongs to the Business this was decided in European Court of Human Rights in Nerva and others v United Kingdom [2003] 36 EHRR.
  • Troncmaster can be and usually is appointed by the employer.
  • In practice credit card tips are processed through Tronc. Cash tips are distributed by staff among themselves. As a good practice employer should add a note to payslip to remind employees that cash tips are taxable income and they should declare it to HMRC seperately.

Also further guidance is given in HMRC National Insurance Manual – NIM02900CO

Accounting for Forward Contracts for SMEs

Our client sell items in Eurozone and collect sale proceeds in Euros. They buy from China thus need Chinese Yuan to make payments to their suppliers.

Say on 1st April 2020 Client entered in a forward exchange contract to sell €10,000 and buy Yuan with settlement date of 30th June 2020. When they enter in the forward contract their bank American Express asks them to deposit 10% as a security.

At 1st April 2020 – Contract signed + deposit paid

  • No accounting entry needs to be made for contract signed.
  • Accounting entry for deposit is simple.

Dr           Deposit                  €1,0001
Cr            Bank                      €1,000

Note 1. We will need to open this deposit account in Euros in the accounting software.

At 30th June 2020 – Settlement Date

Date Spot Rate Forward Rate 30th June 2020
1st April 2020 7 9
30th June 2020 8 8

Step 1: Calculate the profit or loss on forward.

  Yuan Rate
Forward Contract ¥ 90,000 1 : 9
If bought in spot market ¥ 80,000 1 : 8
Gain ¥ 10,000
Gain in Euro €1,250 1:8

Step 2: Accounting Journal entry that needs to be passed

Dr           China Bank Account        €11,2502
Cr            Bank                                      €9,0003
Cr            Deposit                                 €1,0004
Cr            FX Gain/loss                         €1,2505

Notes

  1. We will post this transaction with FX rate of 8 Yuan to 1 Euro.
  2. We will need to give balance amount to fulfil our obligations before bank gives us ¥90,000.
  3. Deposit will be used up as part payment.
  4. As calculated earlier.

 

Records retention in a Restaurant

Basic reckoner is given below:

PAYE for employers 3 years from the end of the tax year they relate to.
Corporation Tax For 6 years from the end of the last company financial year they relate to.
VAT At least 6 years
Self Assessement – PAYE At least 22 months after the end of the tax year the tax return is for.
Self Assessement – Self employed At least 5 years after the 31 January submission deadline of the relevant tax year.
Staff Files 6 years after staff leaving
Sales envelopes 18 months for Charge-backs

Please click the links above to see detailed guidance before taking any action.

Students working in restaurants

Like all individuals working in the UK, students also have to pay tax and National Insurance Contributions (NICs).

But they can claim tax back in two circumstances:

  • UK Students:  If you do not plan to work in another job till coming 5th April, you can claim tax back by completing form P50

 

  • Overseas Students: If you are leaving UK you can claim tax back by completing form P85

 

  • Under the age of 16 : Their National insurance code is X , as National Insurance contributions are not payable for under 16 year olds.

 

Further resources:

HMRC has made an informative You tube video.

CIOT has prepared a very good notes with detailed information,
please visit CIOT website.

 

 

Restaurant Industry – Human Resources Files

Restaurant Industry – How to do Right to Work Checks ?

Restaurant industry has one of the highest levels of staff turnover. Restaurant Managers and Chefs are so busy with day to day operations that this area gets lags behind.

Main hurdles we see from managers:

1 – Lots of paperwork to be collected and issued. How to track them.

2 – Lack of knowledge on which paperwork to collect , when to collect and what to check.

We have prepared a quick MANAGER’S CHECKLIST for the recruiting managers to use while on-boarding staff. This is one of the series of documents we have to help the clients fulfill their obligations relating to `Right to work` checks.

One of the useful tool is the European Union Official website PRADO (free resource) helping recruiting managers to check `Right to Work` documents of a prospective employee.

We advise and help clients in being vigilant in this area and avoid illegal working penalties.

See this Map for the restaurants fined in London this year.