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Can I Make a Claim for Director Redundancy?

Can I Make a Claim for Director Redundancy?

As a director of a limited company, you have just as much right to claim redundancy as your employees.

If you are liquidating a limited company that has been trading for more than two years, you can likely claim a director redundancy payment.

The average claim for director redundancy in the UK is £9,000. These payments are made by the RPO (Redundancy Payments Office).

This money can be used for liquidation costs if necessary. It’s also likely that you can claim for other statutory entitlements such as notice pay, holiday pay, and unpaid wages.

Many company directors are not aware these entitlements are available to them.

If you meet the criteria, claims can be made from the National Insurance Fund via the Redundancy Payments Service (RPS), and any redundancy payments are tax-free.

We will work with your Insolvency Practitioner to coordinate your claim to the RPS and help ensure it is paid without having to go through to an expensive tribunal.

How do I know if I am eligible for director redundancy?

To claim a redundancy payment, you must be on the payroll. This means you must be seen to be an employee at your limited company, as well as being a director.

To be eligible for director redundancy, you must:

  • have worked a minimum of 16 hours per week
  • worked under a contract of employment for at least two years (whether written, oral, or implied)
  • be registered on the PAYE system

Your company must also be going into liquidation, which means you are closing it down due to financial struggles (i.e., HMRC debts, creditor pressure, cash flow worries, potential insolvency).

Reasons to liquidate your limited company

The idea of liquidation probably feels like a big step. After all, you’ve worked hard to get your business up and running, and now you’re looking to close it.

There are three ways your company can be liquidated:

  • Creditors Voluntary Liquidation (CVL) – If you decide your business cannot be saved (or simply do not want to save it), we can guide you through the formal insolvency process known as a Creditors’ Voluntary Liquidation – or CVL.
  • Compulsory Liquidation – A company can be forced into liquidation because of money it owes to creditors or HMRC, known as compulsory liquidation. A Winding Up petition is served to you when creditors apply to the courts in this case. All is not lost, though, and we can help if your business finds itself in this situation.
  • Members’ Voluntary Liquidation (MVL) – A Members’ Voluntary Liquidation is a liquidation that applies to solvent companies – it is the formal process that brings your company to an orderly end. Using an MVL rather than a limited company dissolution can give you a tax advantage, as funds from the business are treated as capital gains rather than income.

It’s important to note that liquidation can only be carried out by a licensed Insolvency Practitioner. We will work with you to achieve the most desirable resolution in this scenario.

When can I claim for director redundancy?

You can make claims for redundancy before and after your limited company is liquidated, though the timescales for making these claims are rigorous.

The process must begin either before your business goes through liquidation or within 12 months of it entering the process.

The longer you leave it before claiming, the more difficult the claims process is. If your company has already been liquidated, we advise that you submit a claim within six months.

The best time to start your claim is before the liquidation process. This is because the prospect of receiving a redundancy payment is likely to help you decide to liquidate your company easier.

As mentioned above, you can also use this money for liquidation costs if necessary.

Waiting until after your limited company is liquidated could prevent you from claiming your full statutory entitlements, including notice pay, holiday pay, and unpaid wages.

Can I claim redundancy if my company isn’t going into liquidation?

Basically, the answer is no.

As a director, you can only claim redundancy when your limited company is in the process of going into insolvent liquidation.

Similarly, an employee would not be able to claim redundancy while still in employment.

Redundancy payments are there to help those who are out of work, not those who actively choose to leave their job or profession.

When would I NOT be entitled to director redundancy?

In some instances, company directors do not meet the conditions of redundancy for several reasons.

You are not eligible for director redundancy if:

  • You are not on the payroll – For a director to make a successful redundancy claim, you must be classed as an employee of the business as well as a director. This means you must have been taking a regular salary paid via the PAYE system. So, for example, if you have not been paying yourself or accepting money from your company solely through dividends, you will not qualify for redundancy.
  • Your limited company has been incorporated for less than two years. As with employee redundancy, as a director, you must have at least two years’ service with your limited company to submit a valid claim.
  • Your limited company is being dissolved, not liquidated – The benefit of dissolving your limited company, rather than liquidating, comes down to cost. However, with the average UK claim for director redundancy being £9,000, you could be better off financially by liquidating your business, even accounting for the cost of the CVL, which typically costs around £4,000. If you are considering closing your insolvent company, we can help you get an idea of the amount of redundancy you may be able to claim by liquidating it before you make a final decision on how to proceed.
  • Your limited company is not insolvent – Should you decide to close your solvent company, this is viewed as a resignation rather than redundancy. However, as a director, you can only claim redundancy when your limited company is in the process of going into insolvent liquidation.

How much director redundancy pay will I get?

The amount of director redundancy to which you are entitled depends on several factors. They include:

  • Your age
  • The length of your service
  • Your rate of pay

The way to calculate how much redundancy you will get is your gross weekly wage (up to £479 per week) and your length of time in service (capped at 20 years).

As mentioned above, you can also likely claim for other statutory entitlements such as notice pay, holiday pay, and unpaid wages.

If you would like to know more, contact the Future Strategy team today. Our initial consultation is FREE. Here we will assess the viability of the business and offer advice on appropriate strategies.

We will also advise on the solution options available in relation to your specific situation and requirements. These solutions are wide-ranging, cost-effective, and flexible.

We can talk you through all of your options and find you the right solution

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