Restaurants and hotels will be able to reclaim millions of pounds back from the tax man after HM Revenue & Customs made an embarrassing U-turn on troncs last week.
Following months of debate, the Revene has admitted that businesses are allowed to use tronc money to top up salaries to the national minimum wage without attracting national insurance (NICs) with immediate effect.
The Revenue cracked down on restaurant tronc schemes three years ago with Operation Gourmet.
Companies faced demands for up to six years of back tax and many were driven out of business as a result.
But last week the Revenue conceded it had misinterpreted the law. It now says that as long as tronc money is distributed by an independent tronc master, it can be used to top up wages without paying NICs.
The tax break remains valid even if the tronc money is distributed through the central payroll system.
It will also no longer demand national insurance where contracts or job adverts mention troncs.
Only schemes where employers, rather than independent tronc masters, allocate the money will attract national insurance.
Peter Davies at accountancy firm Vantis said the Revenue's climb down represented "a comprehensive victory" that would affect thousands of businesses who were under investigation or out of pocket.
Along with refunds and interest, the Revenue could face compensation claims from firms driven to insolvency by its enquiries, added Richard Clarke, tax director at PricewaterhouseCoopers.
Restaurant owners should seek advice from accountants and legal advisors before changing their tronc systems.
By Angela Frewin
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