South: Charterhouse supports precedent-setting victory against HMRC

Accountancy firm Charterhouse LLP, with offices in Harrow and Beaconsfield, has recently defended its client Forde and McHugh in a victory against HMRC in the Supreme Court. The victory creates a ruling that will have a widespread impact on how company contributions to pension schemes are treated and is likely to have wider implications.

Charterhouse advised Forde and McHugh in the establishment of a pension scheme for the benefit of the director in 2002. The scheme is known as a Funded Unapproved Retirement Benefit Scheme or FURBS for short and is a commonly-used way for business owners to make provision for their retirement.

The company transferred cash and treasury stock worth £170,000 to the pension scheme, following which HMRC argued that National Insurance Contributions (NIC) were due in respect of these assets.

The amount of NIC involved in the case of Forde and McHugh was £20,000 and yet challenging HMRC would have cost significantly more than the amount at stake.

Charterhouse, however, recognised that HMRC's claim was wrong and committed to defend the client's position. To do this, it identified other parties that were interested in the matter and, having done so, put together a fund to take the case forward. As it transpired, the challenge went all the way to the Supreme Court.

The matter was listed for appeal and was initially heard by the Upper Tribunal which decided in favour of Forde and McHugh. A subsequent Court of Appeal hearing took place in December 2011 and a decision was issued in May 2012 in favour of HMRC. The decision of the Court of Appeal was appealed to the Supreme Court and the hearing took place in January 2014.

On February 26, the Supreme Court handed down its decision in favour of Forde and McHugh and overturned the Court of Appeal Decision. The Supreme Court is the highest court in the UK and thus it marked the end of a rollercoaster ride for Charterhouse and its client.

The result has been eagerly awaited within the accountancy profession as the outcome may be relevant to other situations where HMRC is seeking National Insurance Contributions on money spent by companies for the benefit of their directors and employees.

The decision, in summary, means that NICs are not payable by companies in respect of the contributions made to a Funded Unapproved Retirement Benefit Scheme. Where companies have made payments on account in the past, these should now be repaid to the company (together with interest). Charterhouse is now helping numerous other clients affected by this decision to obtain significant repayments from HMRC.

"We will always be proactive for our clients where we believe HMRC is wrong," said Raj Jiwani, partner at Charterhouse. "HMRC does a difficult and important job, but it does sometimes reach conclusions that need to be challenged. This groundbreaking decision will have repercussions across the tax planning and pension planning industries and is a victory for hard-working business owners who need to use their business assets to finance their retirement.

Based in Newport Pagnell, Buckinghamshire, Forde and McHugh supplies and erects street lighting equipment and is a specialist in trenching, thrustboring, cable laying, jointing and signage. It is a family-run business with more than 40 years' experience in the industry.

"We are relieved that the case has come to an end and that the Supreme Court decision was in our favour," said Tony McHugh, director of Forde and McHugh. "We are a small family business and couldn't have taken this test case to this stage without the help of Charterhouse; it was completely beyond us."

He added: "This was a test case and we were standing up for other small businesses. We've had quite a few phone calls and messages of congratulations since the decision. We are very grateful to Charterhouse for its support and expertise in winning the case. Now that it's been ‘put to bed' our focus is on the business and driving that forward."

A copy of the judgement is available for download on the Supreme Court Website here.