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HMRC internal manual

National Insurance Manual

HM Revenue & Customs
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NICs avoidance: employment income provided through third parties: Employer Financed Retirement Benefit Schemes - employer contributions not earmarked

Many EFRBS are established under a discretionary trust and will have a group of persons specified as beneficiaries. A discretionary trust is one where trustees have discretion about how to use the income of the trust, and sometimes the capital.

If the facts are such that a payment made into a discretionary trust is

  • set up for a number of beneficiaries, for example all current and former employees, and
  • not for one particular beneficiary.

then there will not be an amount which counts as employment income under Part 7A of ITEPA 2003. But all evidence must be examined critically as it may show that a sum of money or an asset is earmarked for a particular employee or director (however informally), and so Part 7A of ITEPA 2003 may apply, see NIM52150 and EIM45110.

Steps may arise after an employer’s contributions are made to an EFRBS that may give rise to an amount counting as employment income under Part 7A of ITEPA 2003, and which therefore may be treated as earnings for Class 1 NICs purposes. Such a step may arise immediately after the employer pays money to the trustees.

For general guidance about EFRBS and the application of Part 7A of ITEPA 2003 and corresponding NICs legislation, see NIM52700.