Once, tipping was simple. A few coins left on a saucer, a thank-you for good service. Now, it’s a minefield of percentages, politics and payroll. Everyone in hospitality has had the same conversation: the one where a guest points to the bottom of the bill and asks, “Where does this go?… is that the tip, or do I still need to add one?”
What used to be a small act of generosity has become a source of confusion — and, increasingly, confrontation. A simmering anger about rising costs and service expectations now spills out in dining rooms across the country. Guests feel squeezed, staff feel blamed, and somewhere between the two sits that one misunderstood line: service charge.
This isn’t just a guide for diners. It’s for those inside the machine — operators, managers, and teams — who know that this seemingly simple line on the bill reflects the most complicated parts of running a restaurant in Britain today.
How we got here
Hospitality is almost unique in how it pays its people. No one tips a shop assistant for handing them a T-shirt, or a pharmacist for explaining a dosage. Yet restaurants have built a culture where diners are expected to top up wages through custom.
As Cousin Richie in The Bear famously put it:
“Tipping in general, it’s a pretty fucked up practice… You judge a professional based on their performance, and determine how much money they’re gonna make? That’s fucking stupid. I go see a play, the actors are bullshit. I don’t pay them?”
The roots of this system stretch back centuries. Tipping in inns and taverns has existed as long as those places have, but the idea of adding a fixed “service charge” to bills only took off in the mid-20th century. After the Second World War, restaurants began to include it by default to stabilise staff income in an unstable economy.
The ‘tronc’ system — from the French tronc, meaning “alms box” — had already emerged by then. It pooled tips centrally so everyone, from kitchen porter to bartender, got a share. It worked in a cash world: traceable enough for government, transparent enough for staff. The deal was simple — income tax applied, but National Insurance and VAT did not.
Fast forward to today. Payments are digital, every transaction recorded, and the original logic — fairness in a cash economy — no longer fits. Yet the structure remains, because it continues to solve two problems that no one has otherwise managed to reconcile: wage pressure and tax efficiency.
The tax paradox:
discretionary on paper, essential in practice
Here’s where it gets knotty.
Under HMRC’s E24 Guidance on Tips, Gratuities, Service Charges and Troncs, a service charge only avoids VAT if it is genuinely discretionary — that is, the customer must have a real choice to remove it. If a restaurant adds it automatically and treats it as compulsory, it becomes part of the sale and subject to VAT. Twenty percent goes straight to HMRC before it reaches a tronc or a payslip.
To stay VAT-free, every restaurant in the UK must therefore present its service charge as optional. That’s why you see “A discretionary 12.5% service charge will be added” on almost every bill. The word discretionary is a legal shield. But here’s the reality: it’s only optional in name.
If restaurants treated it as truly discretionary — meaning if a meaningful number of guests regularly declined to pay it — most wage structures would collapse. Because service charge isn’t a bonus anymore; it’s a core part of staff pay. The system only works when almost everyone pays it, every time.
So the industry is caught in a paradox: to avoid tax, service charge has to be technically optional; to pay people properly, it has to be functionally compulsory. That tension is what makes the model so confusing to guests and so impossible to replace.
Why restaurants rely on it
The tronc system is the last remaining mechanism that allows restaurants to pay competitive wages without collapsing under tax and National Insurance.
If tips or service charge are distributed through an independent troncmaster rather than through payroll, they can be exempt from National Insurance contributions. For both employer and employee, that’s a major saving — one that can make the difference between survival and insolvency.
If everything were rolled into basic pay, that exemption would vanish. Employers would pay more NICs, employees would earn less after tax, and menu prices would need to rise by 20% or more just to stand still.
As Mandy Ying, chef-owner of Sambal Shiok, explained:
“Unfortunately staffing costs already make up 40-45% of operating costs and this is with majority of staff being on minimum wage. I have always passed on 100% of tronc (service charge/tips whatever you want to call it) to staff, which increases their ultimate take home pay to over London living wage. Without tronc you'll find that vast majority of restaurants, even chains, will go bust. Yes the system is broken. But this is the truth of the situation.”
That truth is uncomfortable but undeniable. Service charge props up wage bills not because owners want it that way, but because the fiscal system leaves them few alternatives.
The illusion of choice
Diners often think service charge is a reward for good service — a polite nod of appreciation. But in most restaurants today, it’s the structural underpinning of the payroll.
When guests opt out, they’re not punishing bad service; they’re docking wages. And under the new law, there’s no longer a safety net to make up the shortfall.
Yet restaurants can’t come right out and say that, because to do so would risk triggering VAT liability and NIC. So the language stays as it is — “discretionary” — and the confusion continues. Guests feel pressured to pay something they think is optional. Staff feel exposed when they don’t. Operators are legally required to maintain the fiction, even though everyone knows it’s just that: a fiction.
This is the heart of the problem. We have a tax system built on pretending service charge is voluntary, and an industry built on knowing it isn’t.
The rise of new charges
The months following the new law’s rollout saw operators scrambling to adapt. Some, losing flexibility over the service charge pot, have experimented with new ways to plug the gap.
Ping Pong’s short-lived “brand charge” — a 15% fee replacing service charge — was an early attempt to sidestep the new rules by renaming the cost. Public outrage was immediate, and the scheme was scrapped. So was Ping Pong, incidentally - their demise flagging how fine the line is now between success and failure.
Harrods added a £1 “cover charge” on top of its 12.5% service line, prompting concerns from staff that guests would assume double charging and remove the optional fee — cutting directly into take-home pay. The Big Mamma Group, meanwhile, introduced a £2.99 “checkout fee” through its app payments. Guests noticed, complained, and the debate spread across social media.
At the same time, standard service charges have crept upwards: 15% is fast becoming London’s norm, with 18% appearing in parts of Mayfair. Operators justify it with rising costs, but guests are feeling the pinch. The more opaque the charges become, the less trust remains.
Why “service included” didn’t survive
After the pandemic, a handful of restaurants tried to break the cycle. They scrapped service charge entirely, raised menu prices, and paid higher base wages. The aim was transparency — no awkward tipping moment, no confusion over where the money went.
For a while, it looked like the start of a movement. Ed Thaw of now-shuttered Leroy was one of the loudest advocates, saying:
“Getting rid of Tronc is a way for businesses to reset the conversation with their staff and be straight with their customers.”
But the reality quickly hit home. In the UK and abroad, the model struggled to survive in a world where margins are wafer-thin and tax rules are punishingly rigid. In New York, Danny Meyer’s “Hospitality Included” experiment at Union Square Hospitality Group famously backfired. Bartender Wilma Cespedes-Rivera told The New York Times:
“People understood that the goal was a healthier balance,” she said, “but it wasn’t what we signed up for financially.”
Without the variability of tips or service charge, staff take-home pay dropped. Diners balked at higher menu prices. And as inflation hit, operators found themselves squeezed from both sides. Leroy eventually closed its doors, and the restaurants that had followed its example quietly reintroduced service charge. The “service included” movement — promising fairness and clarity — simply couldn’t hold against the economic reality.
In the end, many of those who tried it came to the same conclusion: without a coordinated industry-wide shift, or a change in how service pay is taxed, removing service charge in isolation just isn’t sustainable. The new legislation may have made the system fairer, but it didn’t make it optional. That “tax break” — the NIC efficiency of tronc — remains the quiet engine of the whole system.
Who’s getting it right
A few operators continue to challenge the system in smaller, more pragmatic ways. Tom Kerridge runs The Hand and Flowers with no service charge at all, explaining:
“Those prices include everything. VAT and service. No additional service charge at all. I pay staff properly and treat their job as a professional career. Perhaps the real cost of dining should be addressed.”
Elsewhere, some restaurants that once went “service included” have adapted rather than abandoned the principle. Perillaand Morchella, which initially launched without service charge, have since reintroduced it to keep pace with rising costs — a recognition that, however strong the values, the maths still needs to work.
Others, like Chantelle Nicholson at Apricity in Mayfair, are opting for a middle ground: a modest 8% charge (up from 5%), deliberately kept low but flexible. Nicholson says it “leaves room to increase again, which is helpful to know it’s there as an option.”
These examples share a thread of honesty. They acknowledge that the system is flawed, but they also accept that it’s currently the only one that makes financial sense. For most restaurants, abandoning service charge outright would mean raising prices by double digits overnight — something few customers, or businesses, can absorb.
The squeeze
Restaurants today are being pulled in three directions at once: customers with less to spend, staff with higher living costs, and operating expenses that refuse to budge. Energy, rent, business rates, and produce costs all climb while margins get thinner.
The new legislation has made service charge more transparent but also more brittle. Guests have power — they can opt out — yet that choice cuts directly into workers’ pockets. Operators have less flexibility to smooth or redistribute funds. And the cultural understanding between guest and restaurant — what that 12.5% (or more) really means — has never been shakier.
The challenge for the industry now isn’t just compliance; it’s communication. Guests don’t need to be guilt-tripped into paying. They need to understand what their payment does. The more clearly we explain that the “optional” charge is what allows us to pay fairly, the less adversarial it becomes.
So what the hell is service charge?
It’s not a tip. It's a wage mechanism disguised as a courtesy. It’s discretionary in name but compulsory in function. It’s a tax workaround that props up an entire sector, and a system that everyone knows is unsustainable.
But until government rewrites the tax code or the industry moves as one, service charge is the imperfect glue holding hospitality together. Remove it without reform, and the whole thing falls apart. If prices were to include service charge, menu listings would have to rise not just by 12.5%, but to include NI contributions and then VAT on top of that - which will put us far beyond 20%.
That’s the quiet truth behind every “optional” 12.5% — it isn’t optional at all. It’s what keeps people paid, doors open, and the service industry alive.
