Where a spouse is employed by the family business, the earnings are often kept below the national insurance (NI) threshold to avoid payment of contributions.
For 2005/06 it is worth paying earnings of between £82 (the lower earnings limit) and £94 (the earnings threshold) per week. There will be no employees’ contributions due on the earnings but entitlement to a state retirement pension and certain other benefits is preserved. No employer contributions are payable unless earnings exceed £94 per week in 2005/06. Note that the earnings threshold will be £97 per week in 2006/07. A PAYE scheme would be needed to establish the employee’s entitlement to benefits.
For the self-employed there is a requirement to pay a flat rate contribution (Class 2). If your profits are low you can apply for exemption. The limit for 2005/06 is £4,345. If contributions have been paid for 2005/06 and it subsequently turns out that earnings are below £4,345 a claim for repayment of contributions can be made. The deadline for this claim is 31 January 2007. On the other hand it may be advisable to pay the contributions in any event in order to maintain a contributions record. The alternative voluntary Class 3 contributions are £5.25 a week higher.