Contribution to pension -

Not "earnings" for NIC purposes

HMRC v Forde and McHugh Limited (Appellant): (2014) UKSC 14

This is a case decided by the Supreme Court where basically the issue was about the meaning of the term “earnings” under section 6(1) of the Social Security Contributions and Benefits Act 1992 for National Insurance (“NICs”) purposes. The appellant company had established by trust deed a retirement benefit scheme (Funded Unapproved Retirement Benefits Scheme) to provide relevant benefits (s.612 of the ICTA/88) to its employees and directors. The trust provided that, upon a member’s retirement from service, the trustees were to apply the accumulated fund in providing the member with a pension for life or such other relevant benefits as they might agree with him. On the member’s death the trustees were to realise the accumulated fund and apply the net proceeds to or for the benefit of a defined discretionary class of beneficiary. Mr McHugh, a shareholder and director of the appellant company asked to become a member of the scheme. He informed the trustees that he wished them to exercise their discretion in favour of his wife in the event of his death. The appellant company made an initial cash contribution to the scheme of £1,000 and transferred to it Treasury Stock with the nominal value of £162,000, both for Mr McHugh’s benefit. He has been the only member of the scheme. HMRC argued that the money contributed to the scheme was Mr McHugh’s earnings at the time the contribution was made and thus subject to Class 1 NICs. The Appellant’s case was that NICs are payable on what the employee receives and at the time the contribution was made into the scheme, Mr McHugh had received nothing. His right to a payment in the future was contingent on a number of factors, including his survival until retirement. The Supreme Court unanimously agreed with the arguments advanced on behalf of the Appellant and allowed the appeal.

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