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HMRC internal manual

National Insurance Manual

Class 1 NICs: Earnings of employees and office holders: Funded Unapproved Retirement Benefit Schemes (FURBS) up to 5th April 2006: Payments made by an employer into a scheme before 6 April 1998

In November 1997, a Contributions Agency Press Release announced that legal advice had confirmed that most payments into and out of FURBS were “earnings” for NICs purposes. Prior to that date guidance issued to employers in respect of NICs did not make specific mention of FURBS. It was therefore decided not to collect arrears of NICs on payments paid into FURBS before 6 April 1998 unless the scheme did not actually provide a genuine pension.

This means that NICs will be enforced on payments into FURBS before 6 April 1998 only if money goes into and out of the trust in an effort to avoid the payment of NICs; as in the following example:

A director of a company usually draws an annual bonus of £500,000.

At the suggestion of his financial adviser, the director does not draw the £500,000.

The company sets up a FURBS as a trust with the director and his spouse as sole trustees.

The company pays £500,000 into the trust.

Two weeks later the trustees award the director £500,000 out of the trust.

NICs should be enforced in this situation as the payment out of the trust (the £500,000) is not a genuine pension.

See NIM02156 for further information regarding FURBS and NIC avoidance.

For details of the Class 1 NICs position on payments made into an employer-financed retirement benefits scheme from 6th April 2006, see NIM02755 (overview) and NIM02757.