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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 5 April 2006: schemes excluded from NICs

Paragraphs 3, 4, 5 and 7 of Part 6 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 6 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 6 April 1980 (section 608).

Part 6 was further amended, with effect from 6 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:
    • 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 6 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 6) 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 6 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:

For details of the Class 1 NICs position from 6 April 2006 on:

  • which is attributable to payments paid into it on or after 6th April 1998 and before 6 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 (contents)
  • employer-financed retirement benefits schemes (broadly equal to an unapproved RBS), NIM02750 (contents).