HMRC loses pensions contributions Supreme Court tax case

by Calum Fuller

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05 Mar 2014

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UK Supreme Court

EMPLOYER'S PENSIONS CONTRIBUTIONS are not to be considered earning for tax purposes and therefore not liable for national insurance contributions, the Supreme Court has ruled.

Street lighting suppliers Forde & McHugh had been contributing to a Funded Unapproved Retirement Benefits Scheme (FURBS) for one of its directors, Anthony McHugh, in 2002, who at the time was 54.

The receipt of a pension or other benefits by McHugh was contingent upon him surviving until the age of 60. Until that time, McHugh did not receive any benefit under the scheme.

HMRC argued that the payment by Forde & McHugh fell within the definition of ‘earnings' because it was a sum paid as the quid pro quo for past and future earnings solely for the benefit of McHugh and his wife. HMRC went on to suggest that "earnings" could thus be received by McHugh twice: once at the time of the company's contribution to the FURBS, and again upon McHugh's receipt of the pension out of the trust fund once he reached the age of 60.
Forde & McHugh argued that in fact the funds were only ‘earnings' when paid out to McHugh upon turning 60, something the court upheld.

Micky Ackenson, founding partner at Charterhouse - the accountancy firm advising Forde & McHugh, said: "HMRC does a difficult and important job, but it does sometimes reach conclusions that need to be challenged. This groundbreaking decision will have repercussions across the tax planning and pension planning industries and is a victory for hard working business owners who need to use their business assets to finance their retirement."

An HMRC spokesman added:"HMRC will make repayments in the type of FURBS where the facts are the same as Forde & McHugh and will issue guidance shortly about how employers can apply for refunds.

"We won't be making repayments in cases where a FURBS trust has been used as a component in an avoidance scheme."

 

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