HMRC loses NI contributions case

The Supreme Court has ruled against HM Revenue and Customs (HMRC) in a national insurance (NI) test case, rejecting the argument that a single employer pension contribution to a funded unapproved retirement benefits scheme (FURBS) should have been subject to NI contributions liability.


The case, HMRC v Forde and McHugh, is the lead case in a number of appeals concerning the interpretation of the meaning ‘earnings paid to or for the benefit of an earner’.

Employer pension contributions and benefits are not normally classed as earnings liable to NI contributions, but in 1998 the Department of Social Security (DSS) argued that contributions to FURBS were indeed subject to NI liability.

According to the DSS, the contribution was a payment of earnings ’for the benefit’ of an employee, even if, as in this case, the employee had no immediate entitlement to the money and might never have an entitlement if he or she died before the pension was paid.

Employers paid into such schemes in 2002, and HMRC duly argued that the money amounted to earnings that should attract NI contributions.

The Supreme Court decided that there could not be payment of earnings if the employee had only a contingent right to the cash, so no NI contributions were due on the contribution.

David Heaton, employment taxes partner at Baker Tilly, said: “The dispute has dragged on for many years, so it may be too late for organisations to claim refunds of the [NI contributions] that were incorrectly assessed.

“It is to be hoped that HMRC now signals its willingness to rectify the position for all those that suffered from the flawed policy.”