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Small firm wins Supreme Court pension decision

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6th Mar 2014
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A small business supplying street lighting equipment has won a tax case about a pension scheme in the Supreme Court.

The decision in favour of Forde and McHugh Limited, which is based in Newport Pagnell, Buckinghamshire, could act as a precedent for how other company contributions to pension schemes are treated because similar cases have also been appealed.

Accounting firm Charterhouse advised Forde in setting up a pension scheme for the benefit of the director in 2002. 

The scheme - known as a funded unapproved retirement benefit scheme (FURBS) - is widely used for business owners to make provision for their retirement, Charterhouse said.

On a member’s retirement from service, the scheme trustees apply the accumulated fund to give the member a pension for life or other relevant benefits. On the member’s death the trustees realise the accumulated fund and apply the net proceeds to or for the benefit of a defined discretionary class of beneficiary.

On the same day that McHugh, a shareholder and director of Forde, asked to become a member of the FURBS, he informed the trustees that he wished them to exercise their discretion in favour of his wife in the event of his death.

Forde 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 was the only member of the scheme and received no benefits from it.

HMRC argied that Forde was liable to pay national insurance contributions on the value of the transfer to the pension scheme. Forde appealed against this.

The company won a case in the upper-tier tribunal, but HMRC was allowed to take it forward to the Court of Appeal.

The main issue in the Supreme Court case was whether the transfer of the cash and Treasury stock to the pension scheme constituted a payment of earnings to McHugh under the Social Security Contributions and Benefits Act 1992. 

It was agreed that the payment was for his benefit. But was it “earnings” for the purposes of that section?

The Supreme Court ruled in favour of Forde.

Companies that have made payments on account in the past should now be repaid with interest, said Charterhouse, which is acting for other clients on this issue.

Micky Ackenson, founding partner at Charterhouse, said the Supreme Court’s decision was a “victory for hard working business owners who need to use their business assets to finance their retirement."

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Replies (5)

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By M.E.Bhayat
10th Mar 2014 14:06

Supreme Court Pension Decision for small firms

It is good decision for companys  pension contribution  scheme. Average small firms don't have that size of pension scheme.and they are generally small. I don't thonk make any difference to  them.But it is a good decision benefiting  small firms.

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By Ian McTernan CTA
10th Mar 2014 14:40

Excellent news for small business owners who can afford to put a little away towards their own retirement- too many of whom currently don't!

One less burdensome tax to worry about.

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7om
By Tom 7000
10th Mar 2014 18:13

Difference

Whats the difference between this and

a) Just putting it in as an employers contribution  with a big pension co

b) Just putting it in a Sipp

 

 

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By AfemikheWilliam Adamson
11th Mar 2014 11:20

Supreme court decision for smal firmsl

This is a very good decision .  Small firms should take advantage of this so that they can plan well for their retirement. 

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By 2221684
11th Mar 2014 15:36

EBT's?

I assume that this case is of little relevance to pensions and much more to do with the issue of disguised remuneration, and HMRC's ultimate goal of obtaining the PAYE/NIC on EBT/EFURB contributions/EBT loans, pre sch2 FA2011. Very different in context to the Rangers FC case but nonetheless another unhelpful decision for the Revenue. 

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