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Restaurant Industry Asks Government to Reconsider Exclusion of Tips From Coronavirus Payments

A letter written by a tronc expert and signed by high-profile restaurateurs says HMRC has misunderstood the system

UK - West London - Orangery restaurant at Kensington Palace and Gardens Photo by In Pictures Ltd./Corbis via Getty Images

A group of high-profile London restaurant owners have signed a letter asking the government to include tronc earnings in calculations made by employers applying for the Coronavirus Job Retention Scheme, which supports the salaries of furloughed workers. The scheme currently excludes the system for sharing tips and service charges among restaurant workers.

The letter, written by WMT Troncmaster Services managing director Peter Davies, and signed by the owners of Hawksmoor steakhouses and the chief executive of prolific restaurant group D&D, comes after widespread confusion, surprise, and disappointment when the government confirmed a fortnight ago that restaurants were not able to include staff’s supplementary earnings — such as those from service charges — when applying for the government scheme which pays 80 percent of worker wages up to the value of £2,500 per month.

Previous government guidance had relied on ambiguity, meaning that interpretations and legal advice varied, leading to many restaurateurs assuming they could include tronc in their calculations. In practice, the policy means that hundreds of thousands of restaurant workers will lose out. In the letter, Davies says that as many as 750,000 workers will receive “significantly less than than 80 percent of their earnings.”

This week, Corbin and King’s Jeremy King, the co-owner of The Wolseley, Brasserie Zedel, and a number of other high-profile London restaurants called it a “discriminatory ruling,” saying that many people in that group are set to earn as little as 40 percent of their normal salaries as a result.

Crucially, Davies believes that the restaurant industry has a case, indicating that the government’s decision is based on a misunderstanding of how the tronc system works. In the letter, he cites recent comments made by the Treasury’s director general of tax and welfare Beth Russell to the House of Commons Treasury Select Committee. She explained the rationale behind the decision to exclude tronc payments from calculations in furlough applications: “The difficulty with tronc particularly is that in some cases tronc is notified to HMRC and in some cases it’s not, so if we included it there would be unfairness in that approach as well.”

Davies told the Caterer last week that this was a “completely mistaken assumption.” In the letter, he points out the overwhelming majority of service charge payments in restaurants are made by credit or debit card and therefore automatically subjected to tax deductions from the employer.

Davies goes on to suggest that the exclusion of the payments may leave businesses at legal risk: “We believe that tronc payments are regular payments which are paid to employees under a legally binding obligation. For an employer not to do so, would, potentially expose them to the risk of a legal claim from their employees.” It thus further mandates the government to clarify its reasons for exclusion, as well as highlighting the discrepancy in tip rules between employees on PAYE and the self-employed.

More soon on any government response.

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