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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: NIC liability where schemes are granted interim approval for tax purposes

Regulation 25 and paragraph 6 of Part VI of Schedule 3 to the Social Security(Contributions) Regulations 2001

The Inland Revenue operates, by concession, a system of “interim approval” for retirement benefit schemes. This enables certain schemes which have applied, or will apply, for approval to enjoy the same tax treatment as approved schemes. If approval is subsequently not granted the tax concessions are withdrawn.

For NICs purposes liability has to be determined in the pay period in which a payment of earnings is made (see NIM01002) so that NICs can be properly calculated and paid to the Collector of Taxes. This makes it impossible to align completely with the concessionary treatment available for tax, but regulations were introduced with effect from 6 April 1999 to provide that NICs are not due on payments at the interim approval stage as long as certain key criteria are satisfied.

Key criteria

Where an application for tax approval has been made in respect of a retirement benefits scheme established for the sole purpose of providing relevant benefits, and, at the time that payment is made, the application has not been rejected, such payments will not be liable for Class 1 NICs if key criteria are met. This does not, however, apply where an employer has a small self-administered scheme and is applying for approval of a second or subsequent small self-administered scheme.

The need to satisfy the key criteria ensures that only schemes likely to receive tax approval can take advantage of the “interim approval” status for NICs purposes.

The key criteria are:

  • an application for approval of the scheme has been made to the Board of Inland Revenue in accordance with section 604 of the Income and Corporation Taxes Act 1988 (application for approval of a scheme);
  • that application has not been rejected;
  • the scheme does not allow contributions to it in respect of an employed earner’s earnings in excess of the permitted maximum (see SE15010 for details of the maximum);
  • the terms of the scheme do not permit any pension payable under it, in whole or in part, to be surrendered, commuted or assigned except in so far as to allow an earner on retirement to obtain, by commutation of their pension, a lump sum or sums not exceeding in all three-eightieths of their final remuneration for each year of service up to a maximum of 40;
  • if a scheme is connected with another approved scheme or schemes and, when aggregated, the benefits payable by way of a pension or commuted pension exceed the earnings cap, then these types of schemes will not be able to take advantage of the interim approval status;
  • if a scheme is a small self-administered scheme, then a pensioner trustee must be appointed before the scheme will be able to take advantage of the interim approval status.

If a scheme which satisfies the key criteria subsequently fails to obtain approval, NICs will be due on any further payments into the scheme. NIC liability will not, however, be applied retrospectively and you should not seek to recover NICs for periods before the date the application for approval is rejected.

Some schemes are allowed to receive the preferential tax treatment enjoyed by approved schemes prior to an application for approval being made. In these circumstances NICs are payable on any payments the employer makes to the scheme prior to the application for approval being made. If the scheme is subsequently approved, a refund will be available for the period for which NICs were paid and for which approval has been given.


In May 2000, payments are made to an unapproved scheme prior to submitting an application for tax approval. NICs are due.

In September 2000, an application for tax approval is submitted and the scheme meets the key criteria for NICs purposes. No NICs are due.

In June 2001, the scheme receives approval backdated to May 2000. A refund is available for the period May to September 2000.

For more information regarding the refund provisions appropriate to FURBS see NIM02163.