NIM02161 - Class 1 NICs: Earnings of
employees and office holders: Funded Unapproved Retirement Benefit
Schemes (FURBS) up 5th April 2006: schemes excluded from NICs
Paragraphs 3, 4, 5 and 7 of Part 5 of Schedule 3 to the Social
Security (Contributions) Regulations 2001
Sections 387(2), 390, 590 and 591 ITEPA 2003
Sections 607, 608 and 612 ICTA 1988
In order to provide greater certainty, legislation was
introduced from 6th April 1999 that provided specifically for the
disregard, in the calculation of earnings, a payment into, and out
of, the following types of retirement benefits scheme ("RBS"):
- an approved scheme (section
387(2)(a))
- a relevant statutory scheme (section
387(2)(b))
- a scheme set up by a government outside of
the United Kingdom for the benefit of its employees (section
387(2)(c))
- an overseas scheme which, if based in the
United Kingdom, would have corresponded to any of the above types
of scheme (known as a "corresponding scheme"; section 390)
- a pilot's benefit fund (section 607)
- a superannuation fund approved before 6th
April 1980 (section 608).
Part 6 was further amended, with effect from 6th April 2004, so
that the following were also disregarded in the calculation of
earnings:
- paid under a former approved superannuation fund
(section 590(a)); or
- obtained using funds held for the purpose of such
a fund (section 590(b))
- the full amount of which is taxable as pension
income (section 591).
The 1999 legislative changes also provided for the disregard in
the calculation of earnings of a payment:
- to an overseas pension scheme
- which qualifies for tax relief under the
double taxation agreement ("DTA") with the following
countries:
- France (paragraph 7(1)(a))
- Republic of Ireland (paragraph 7(1)(b))
- Denmark (paragraph 7(1)(c)).
The DTA with the United States of America was added to the
disregard with effect from 6th April 2005 (paragraph 7(1)(d)).
Preventing a double NICs liability
In order to avoid the possibility of a Class 1 NICs liability
arising on both a payment into, and out of, an unapproved RBS, the
1999 legislative changes also introduced specific disregards for
that purpose.
Paragraphs 4 and 5 (of Part 5) provide for the disregard in
the calculation of earnings as follows:
a payment of "relevant benefits" from an unapproved RBS which
is attributable to sums paid into it before 6th April 1998.
For the purposes of the disregard, "relevant benefits" has
the same meaning as in section 612 (
EIM15021 paragraph (1)).
a payment of any benefit from an unapproved RBS:
- which is attributable to payments paid
into it on or after 6th April 1998 and before 6th April 2006;
and
- which payments (into the scheme) have
previously been included in the employee's earnings for Class 1
NICs purposes.
For details of the Class 1 NICs position from 6th April 2006
on:
- registered pension schemes (broadly equal
to an approved scheme), see
NIM02710 (contents)
- overseas pension schemes, see
NIM02725 (contents)
- employer-financed retirement benefits
schemes (broadly equal to an unapproved RBS),
NIM02750 (contents).
