Are Directors Entitled To Redundancy Pay

Are Directors entitled to Redundancy Pay? Author: John A Waller, Director. Reviewed June 11th, 2024.

Are Directors Entitled To Claim Redundancy?

Directors Redundancy Advice

As a company director of a UK limited company, company directors may claim statutory redundancy the same as any employee entitled to redundancy. So, submitting a claim starts the process and paid through the government’s National Insurance Fund and Redundancy Payment Service (RPS).

However, false disclosures on the RP1 and RP3 forms can lead to claim rejection. Therefore, HBG Advisory can help acceptance of your claim, maximised, and processed correctly.

Company directors often do not claim their redundancy when placed into liquidation. We can help you get the most from the Redundancy Payment Service (RPS). This will be done alongside the licensed Insolvency Practitioner to ensure claims remain paid out without the need to go to a costly tribunal.

So remember, you were an employee of the company if paid through your PAYE scheme.

Director Redundancy Claim – Criteria For Claiming Redundancy? 

However, to claim as a company director for statutory redundancy, you must first meet the set criteria:

  • Status as an employee paid via PAYE Payroll;
  • You have a contract of employment (as employees have an employment contract);
  • Employed on the payroll for at least two years continuously;
  • A company entering liquidation or must already be in liquidation.

What am I entitled to and eligible to claim?

As a director, you may be eligible for redundancy incorporating:

  • Statutory redundancy payment.
  • Lieu of notice pay.
  • Unpaid wages.
  • Accrued Holiday pay.

Claims For Company Directors

First, check the solvency of your business. If solvent, why do you want to close your business? Perhaps therefore consider a Members Voluntary Liquidation (MVL)?

Should your business be insolvent? Then consider  a Creditors Voluntary Liquidation (CVL). This formerly shuts down your company while dealing with any outstanding issues. However, liquidation requires formerly, the appointment of a licensed insolvency practitioner.

Many directors, therefore, do not opt for insolvency because of rescue options—insolvency fees. Company dissolution, compared to insolvency, has little cost to closure, though it does not finalise the problem. Therefore, study closure options via insolvency as insurance, so that nothing will haunt you later. Ensure you understand what may happen to you in a liquidation.

So, opting for company dissolution invalidates your claim as an employed director, which stops any director’s redundancy pay. Therefore, the potential loss for each director can be an average claim of £9000 (Nine Thousand Pounds Approx.).

The liquidator will however ask you to complete an Insolvency Service questionnaire to determine your employment status. The questionnaire requires you to

  • Confirm your employment with the company. The manner may be in writing (contract of employment) given verbally or an implied contract;
  • Your claim relates to the company in liquidation;
  • You worked a minimum of 16 hours per week for the company in liquidation;
  • Your role in the company;
  • The company traded for two years or more.

Your claim would likely succeed if paid as an employee through the PAYE system. However, your employment status will be more challenging to prove if remunerated through dividends.

Are Directors Entitled To Statutory Redundancy Pay – Making your Claim

The average director redundancy pay claim: £10,000

Directors’ and employees’ claims remain submitted to the Redundancy Payments Service. The appointed liquidator’s team will assist in this process. Once  approved, the National Insurance Fund will pay it.

Claims by both employees and directors who wish to make a claim should be made within six months of liquidation, though they can be extended to 12 months. 

What can company directors claim?

Company directors may claim several statutory payments, as with employees, such as

  • Redundancy pay: Directors made redundant on or after April 6th 2017 can receive a maximum of £489 a week, capped at £14,670 (for 20 years of service). 

How Much Redundancy will I receive?

  • If 22 years old or younger
    • 1/2 week’s pay for each year;
  • Between 22 and 40 years old 
    • One week’s pay for every year;
  • 41 years old or older
    • 1.1/2 week’s pay for every year;
  • Salary and holiday pay – directors also may submit a claim for eight weeks of unpaid wages and six weeks of holiday pay maximum if entitled to an outstanding accrued holiday;
  • Notice pay – directors remain entitled to ‘payment instead of notice’ if their employment ends without the correct notice.

So, directors can claim one week’s pay for each year of unemployment (up to 12 weeks) instead of notice.  

Will I be taxed on my redundancy?

The first £30k redundancy will not be taxed. Holiday pay or pay given instead of notice will be taxed, like regular wages.

Need Advice About Your Circumstances?

Considering voluntary liquidation? Maybe you’d therefore like to discuss whether you’re eligible for statutory redundancy pay with one of our licensed insolvency practitioners. What right do employees have? Our employee guide in insolvency outlines what will happen once a liquidator appoints.

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