Restaurant Accountant in Shoreditch and Old Street: Getting Ready for the Delayed Tipping Rules

If you run a restaurant, bar or café in Shoreditch, Old Street or anywhere across East London, the tipping rules touch three parts of your business at once: employment law, payroll and VAT. Most owners focus on the first and forget the other two. The result is that tips are shared fairly on paper but taxed wrongly in payroll, or a service charge is described in a way that makes it subject to VAT. This guide explains the tipping rules as they stand in September 2026, what the delayed changes mean, and the practical steps our restaurant clients are taking now.

Hospitality is a major employer. According to the House of Commons Library, using ONS workforce jobs data, there were 2.6 million jobs in UK hospitality in September 2025, which was 7.1% of all jobs. The government estimates that the tipping legislation will ensure workers receive around £200 million worth of tips each year, according to the Department for Business and Trade’s tips and gratuities factsheet. That is a significant sum passing through restaurant tills and payrolls, and it is exactly why HMRC and employment tribunals pay attention to it.

What are the tipping rules for restaurants right now?

The Employment (Allocation of Tips) Act 2023 received Royal Assent in May 2023 and came into force on 1 October 2024. It applies in England, Scotland and Wales. It is supported by a statutory Code of Practice on the fair and transparent distribution of tips, which employment tribunals must take into account when deciding claims.

A “qualifying tip” is a tip, gratuity or service charge paid by a customer where the employer has control or significant influence over how it is shared. In practice, that covers almost every card tip and every service charge added to a bill. Cash left on a table and kept by the individual waiter, with no involvement from the business, generally falls outside the employer’s allocation duty.

What must a restaurant do under the current rules?

1. Pass on 100% of qualifying tips. The employer cannot keep any part of tips or service charges. The Code of Practice allows deductions only in very limited cases, such as income tax.
2. Share tips fairly. Distribution must be fair between workers, including permanent staff, zero hours workers and agency workers who work at the site.
3. Pay on time. Tips must reach workers, at the latest, by the end of the month following the month in which the customer paid them. A tip left on 3 October must be paid out by 30 November.
4. Have a written policy. If your restaurant receives tips on more than an occasional and exceptional basis, you must have a written tipping policy and make it available to all workers.
5. Keep records. Records of tips received and how they were allocated must be kept for three years from the date the tip was paid.
6. Answer worker requests. A worker can make a written request to see the tipping records relating to them, once in any three month period.

We regularly see London restaurants that believe they are compliant because the staff receive “the tips”, yet the business has quietly deducted card fees, excluded kitchen porters without a clear reason, or paid December tips in February. Each of those is a risk under the current law, before any of the new duties start.

What is changing and when do the new tipping rules start?

The Employment Rights Act 2025 strengthens the tipping rules by adding a duty to consult. The government set out the detail in its February 2026 consultation, Make Work Pay: strengthening the law on tipping. Under the new tipping rules, an employer in a business where tips are received more than occasionally will need to:

1. Consult before writing the policy. Before creating its first written tipping policy, the employer must consult recognised trade union representatives or other worker representatives where they exist, or the affected workers directly where they do not.
2. Review the policy at least every three years. Each review must involve a fresh consultation.
3. Share an anonymised summary. The employer must make a written, anonymised summary of the views expressed in the consultation available to all workers.
4. Face tribunal claims. Workers will be able to complain to an employment tribunal if the employer fails to consult, and the tribunal will be able to order compensation of up to £5,000 for financial loss.

Why is the October 2026 start date no longer correct?

The consultation duty was expected to start on 1 October 2026. In July 2026, the government confirmed that the tipping changes arising from the Employment Rights Act would instead be introduced “by the end of the year”. A draft revised Code of Practice was published, withdrawn, and then republished for consultation, with that consultation closing on 29 September 2026. At the time of writing, no firm commencement date has been confirmed. We will update this guide when the commencement regulations are made.

The delay is a gift of time, not a reason to wait. The consultation has to happen before the policy is written or reviewed, and a genuine consultation with a busy restaurant team takes weeks to organise. Restaurants that start now can run the process calmly in the quieter weeks before the Christmas trade rather than in the middle of it.

How are restaurant tips taxed through payroll?

Employment law decides who gets the tips. Tax law decides how much tax and National Insurance is paid on them, and this is where most errors happen. HMRC’s guidance on tips, gratuities, service charges and troncs (E24) sets out the treatment. The key question is always who decides the allocation.

National Insurance contributions (NIC) are the payroll taxes paid by both the employee and the employer. Pay As You Earn (PAYE) is the system that deducts income tax and NIC through payroll. For 2026/27, employer NIC is 15% on earnings above the secondary threshold of £5,000 a year, according to HMRC’s rates and thresholds for employers.

The difference matters. On every £1,000 of tips that the employer allocates, employer NIC at 15% adds £150 to the restaurant’s costs, on top of the employee’s own NIC. For a busy Old Street restaurant paying out several thousand pounds of card tips a month, the annual difference between a properly run tronc and employer allocation can be substantial.

Should my restaurant use a tronc scheme?

A tronc is a separate arrangement for pooling and distributing tips. A troncmaster, who is often a senior member of staff, is responsible for deciding how the pool is shared. When the troncmaster is genuinely independent of the employer, NIC does not arise on the tips, although income tax is still deducted through PAYE.

What makes a tronc valid for HMRC?

1. A named troncmaster. Someone other than the employer must be responsible for allocation. That person can be an employee, but they must make the decisions themselves.
2. A separate PAYE scheme. HMRC requires the tronc PAYE scheme to be entirely independent of the employer’s own scheme. The employer must tell HMRC about the tronc, unless the arrangement existed before 6 April 2004.
3. No employer control. If the owner or manager tells the troncmaster how to share the money, sets the points system without the troncmaster’s agreement, or can overrule the decision, HMRC will treat the employer as deciding the allocation and NIC becomes due.
4. Genuinely voluntary payments. Only discretionary tips and optional service charges can go through a NIC free tronc. A compulsory service charge always carries NIC.
5. Clear written rules. The tronc rules should sit alongside, and agree with, the written tipping policy that the employment law requires.

The new consultation duty makes the tronc design question more delicate. Staff will now have a formal voice in how tips are shared, while HMRC still expects the troncmaster, not the employer, to make allocation decisions. We help restaurants document this carefully so that the consultation informs the policy without the employer taking back control of the tronc.

Do service charges affect my restaurant’s VAT?

They can. HMRC’s E24 guidance confirms that a discretionary service charge, where the customer has a genuine choice whether to pay it, is outside the scope of VAT. A compulsory service charge is part of the price of the meal and is standard rated, so 20% VAT is due on it.

The wording on your menu, your booking terms and your till receipt decides which treatment applies. “A discretionary 12.5% service charge will be added to your bill” is very different from “a 12.5% service charge applies to all tables”. We often see restaurants in Shoreditch treating the service charge as outside VAT while the menu wording makes it compulsory. That creates an underpayment of VAT that HMRC can normally assess going back up to four years. When you review your tipping policy, review your menu and till wording at the same time.

How do tips affect the National Living Wage and staff costs?

Tips cannot be used to top up pay to the legal minimum. HMRC guidance confirms that amounts paid by the employer that represent tips do not count towards National Minimum Wage pay. From 1 April 2026, the National Living Wage for workers aged 21 and over is £12.71 an hour, and the rate for 18 to 20 year olds is £10.85, according to HMRC’s rates and thresholds for 2026/27.

That means your wage budget must stand on its own. Tips are a benefit to staff, not a way to reduce payroll cost. When we prepare cash flow forecasts for restaurant clients, we model basic pay, employer NIC, pension contributions and tips as separate lines, so the owner can see the true cost of each shift. If you want to go further into the numbers behind your margins, our guide to the seven numbers every restaurant owner should check is a useful next read.

The Employment Allowance, which reduces an eligible employer’s NIC bill, is £10,500 for 2026/27. Many independent restaurants use all of it early in the tax year. Once it is used up, every pound of employer allocated tips carries the full 15% employer NIC.

How do I run a tipping consultation with my staff?

The draft revised Code of Practice says consultation should be genuine, considered and conducted in good faith, with sufficient time allowed. It suggests methods such as group discussions and surveys, and cautions against using a simple majority vote as the default, particularly where it would favour the largest group of workers. Here is the approach we recommend to restaurant clients while the final Code is confirmed.

1. Map who receives tips. List every role at each site: front of house, bar, kitchen, porters, supervisors, managers and agency staff. Note how tips are currently shared and why.
2. Check for a recognised trade union or worker representatives. If they exist, the consultation must go through them. If not, consult the affected workers directly.
3. Prepare a draft policy. Set out how tips are collected, how they are shared, when they are paid and whether a tronc is used. Keep it in plain English.
4. Give staff time and a safe way to respond. Use a short anonymous survey and at least one meeting on each shift pattern, so night and weekend staff are not left out.
5. Record the views and your decisions. Keep notes of what was said, what you changed and why you did not adopt other suggestions.
6. Publish the anonymised summary. Make a written summary of the views available to all workers at the place of business.
7. Finalise the policy and diarise the review. Set a reminder for a full review, with a new consultation, within three years.
8. Tell your accountant before you change the split. A change in who decides the allocation can change the NIC position overnight.

What tipping records does a restaurant need to keep?

Good records protect you in three directions at once: an employment tribunal claim, an HMRC payroll compliance check and a VAT enquiry. As a minimum, we advise restaurant clients to keep the following for at least three years.

1. Daily card tip and service charge totals from the till or payment provider, reconciled to the bank.
2. The allocation for each pay period, showing how much each worker received and on what basis.
3. Payroll reports showing tips paid through the employer PAYE scheme or the separate tronc PAYE scheme.
4. The current written tipping policy and every earlier version, with the date each took effect.
5. Consultation notes, survey results and the anonymised summary once the new duty applies.
6. Menu, receipt and booking wording for service charges, dated, to support the VAT treatment.
7. Worker requests to see tipping records and your responses.

Most modern till and payroll systems can produce this information, but only if they are set up correctly. Tips should run through their own nominal code in the bookkeeping, never mixed with sales, and the tips control account should clear to nil each month once the payout is made.

What tipping mistakes do London restaurants make?

We regularly see the same problems when we take on new restaurant clients across London, from Shoreditch and Old Street to Ilford and Essex. The most common are:

1. Counting tips as sales. Card tips land in the bank with the takings and are recorded as turnover. This inflates sales, can push VAT onto discretionary amounts and overstates profit for Corporation Tax.
2. A tronc that is not independent. The owner sets the points, approves the split and pays through the main payroll. HMRC can treat this as employer allocation and claim back the NIC.
3. Late payment. Tips collected in a busy December are held until the next quarter. The law requires payment by the end of the following month.
4. Deducting costs from the pool. Card fees, breakages or till shortages are taken out of tips. The Code only allows very limited deductions, such as income tax.
5. Leaving out agency staff. Agency workers who serve at the restaurant are entitled to a fair share.
6. No written policy. Many smaller cafés and bars still have none, even though tips arrive every day.
7. Menu wording that contradicts the VAT return. A service charge described as automatic but treated as outside the scope of VAT.

For a fuller picture of how tips fit into hospitality payroll, including rotas, holiday pay and pensions, see our earlier guide to managing payroll for hospitality businesses in London.

How can a restaurant accountant in Shoreditch and Old Street help?

The tipping rules sit where employment law, payroll, VAT and bookkeeping overlap, so they need an adviser who understands all four. Our Old Street office works with independent restaurants, cafés, bars and takeaways across Shoreditch, Hackney and the City fringe, and we understand how busy kitchens actually run. As a restaurant accountant, we can:

1. Review your current tip flow from till to bank to payslip and identify NIC, PAYE or VAT exposure.
2. Set up or repair a tronc, including registering a separate tronc PAYE scheme with HMRC.
3. Draft a tipping policy in plain English and support you through a staff consultation that follows the draft Code.
4. Run your payroll so tips are paid on time and reported correctly every month.
5. Check menu and receipt wording against your VAT returns.
6. Build a cash flow forecast that separates wages, tips and employer costs, so you can see the real cost of each shift.

You can read more about our takeaway and restaurant accountants service, or find our local team through our accountants near Hackney and Shoreditch page. GM Professional Accountants serves clients across London and Essex, with offices in Ilford, Old Street, Wimbledon and Loughton.

Written by Sharaz Zaman, Founder of GM Professional Accountants, AAT Member with 15+ years London accounting experience
Updated September 2026