Employing Family Members

There is a band of earnings which are subject to ‘nil rate National Insurance contributions’ – this apparent contradiction in terms means that no contributions are payable, by employee or employer, but the employee’s contribution record is still franked for pension and Social Security benefit purposes. For 2013/14, the ‘nil rate band’ runs from the ‘Lower Earnings Limit’ of £109 a week (£473 a month) to the ‘Secondary Threshold’ (the point beyond which employer’s contributions become payable) of £148 a week (£641 a month).

Where family members work part-time in a family business, it is important to remember that worthwhile pension rights can be accrued, at no cost, by paying them a salary just over, rather than just under, the Lower Earnings Limit. If you are already doing this, watch that the Lower Earnings Limit rises slightly each April – this year from £107 to £109 a week – so you must remember to increase wages accordingly.

If you are not already franking the contribution records of family members, consider whether you should start, bearing in mind that – as explained on the second page of this newsletter-– people reaching State Pension age on or after 6 April 2016 will need a 35 year contribution record to qualify for a full National Insurance pension.