The Supreme Court has rejected HMRC’s argument in a major National Insurance (NI) test case that a single employer pension contribution to a Funded Unapproved Retirement Benefits Scheme (FURBS) was a payment of ‘earnings’ and should have been subject to National Insurance Contributions (NICs) liability.
The case, R & C Commrs v Forde and HcHugh Ltd [2014] UKSC 14, is the lead case in a number of appeals concerning the interpretation of the meaning of ‘earnings paid to or for the benefit of an earner’ within the Social Security Contributions and Benefits Act (SSCBA) 1992, s6(1).
Employer pension contributions and benefits are normally not classed as earnings liable to NICs, but in 1998, the Department of Social Security (DSS) [now Department for Work and Pensions] argued that contributions to FURBS (usually genuine pension schemes outside the Inland Revenue limits for approval) were subject to NI liability. The DSS said the contribution was a payment of earnings ‘for the benefit’ of an employee, even if, as in this case, the employee had no immediate entitlement to the money and might never have an entitlement if he or she died before the pension was paid.
Employers paid into just such a FURBS in 2002 and HMRC duly argued that the money amounted to earnings that should have attracted NICs. The court decided that there could not be a payment of earnings if the employee had only a contingent right to the cash, so no NICs were due on the contribution.
Many companies were assessed for NICs on their FURBS contributions and most paid the bill.
This long-running dispute does not necessarily bring relief to other affected parties in the view of employment tax experts.
David Heaton, employment taxes partner at Baker Tilly, said: ‘The dispute has dragged on for many years, so it may be too late for companies to claim refunds of the NI contributions that were incorrectly assessed.
‘It is to be hoped that HMRC now signals its willingness to rectify the position for all those who suffered from the flawed policy.’
The dispute has dragged on for many years, so it may be too late for companies to claim refunds'
The judgment may have implications for proposals to merge income tax and national insurance payments, something the Office for Tax Simplification (OTS) has called for over recent years.
Meg Wilson, CCH tax writer, commented: ‘Given the Conservative backbencher Ben Gummer’s proposal earlier this week to change the name of NICs to ‘earnings tax’, with the ultimate aim of merging income tax and national insurance, the Supreme Court’s comments regarding ‘earnings’ in NIC legislation not equating to ‘emoluments’ in income tax legislation helps to illustrate just how difficult such a change would be.’
The case decision is available at http://www.bailii.org/uk/cases/UKSC/2014/14.html