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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 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:

  • an annuity:

The 1999 legislative changes also provided for the disregard in the calculation of earnings of a payment:

    • 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).

  * to an overseas pension scheme
  * which qualifies for tax relief under the double taxation agreement ("DTA") with the following countries:

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:

  *   * France (paragraph 7(1)(a))
      * Republic of Ireland (paragraph 7(1)(b))
      * Denmark (paragraph 7(1)(c)).
    For details of the Class 1 NICs position from 6th April 2006 on:
      *   * 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.
          * registered pension schemes (broadly equal to an approved scheme), see [NIM02710]( (contents)
          * overseas pension schemes, see [NIM02725 ](
          * employer-financed retirement benefits schemes (broadly equal to an unapproved RBS), [NIM02750 ](