HMRC wins FURBS tax refund appeal

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HM Revenue and Customs has tried to shut the door on funded unapproved retirement benefit schemes (FURBS) claiming millions of pounds in national insurance refunds.

The tax man reckons employers are seeking refunds of up to £8.5 million in national insurance, but this decision is expected to stop their claims.

The Court of Appeal backed arguments from HMRC claiming a FURBS scheme run for Forde and McHugh Ltd could not expect repayment of national insurance contributions (NIC) levied on a £163,000 FURBS pension contribution paid in 2002.

HMRC had previously lost an appeal against the original ruling in their favour at the Upper Tribunal.

The Court of Appeal has reversed this decision – but the argument may not be over as the firm can take the case to the Supreme Court.

The Court of Appeal ruling opens the way for HMRC to charge NICs on any employer contributions in to a FURBS before April 6, 2006. In practise, HMRC is likely to hold off imposing payments until any Forde and McHugh appeal to a higher court is resolved.

The judgment gave detailed reasons why the Court of Appeal backed the HMRC case, including:

  • Arguing the NIC charge followed the spirit and intention of national insurance laws
  • Discussion of the link between emoluments and earnings in the National Insurance Acts 1959 and 1965
  • A definition of “paid” and interpretation of other terms in national insurance legislation

FURBS were introduced to provide benefits for pension scheme members with earnings above the salary cap.

Since April 2006, pension reforms removed the concept of a maximum salary for tax approved pension benefits with a Lifetime Allowance, doing away with the benefits of investing in a FURBS.

FURBS were set up under trust as an arrangement between an employee and employer.

Contributions do not attract tax relief. However, there is no limit to the benefits payable, and if required, the entire fund accumulated before April 6, 2006 can be taken on retirement as a tax-free lump sum.

The HMRC now calls FURBS an Employer-Financed Retirement Benefits Scheme (EFRBS).

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