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Directors Redundancy Claim

Can Directors Claim Redundancy Pay?

Being a director of a UK limited company, you may therefore claim directors redundancy payment, the same as any employee entitled to redundancy.  Once you submit your claim, the process begins and is paid through the government’s National Insurance Fund and Redundancy Payment Service (RPS).

However, claims can be complex, and false disclosures on the RP1 and RP3 forms can lead to the rejection of claims. Therefore, HBG Advisory can help you ensure your claim doesn’t get rejected, and thus your claim is maximised, processed correctly, and therefore payments processed.

Directors regularly under claim their redundancy or particularly do not claim, when placed into liquidation. However, we can help maximise your claim from the Redundancy Payment Service (RPS). This will be done alongside the Insolvency Practitioner to ensure claims paid out without the need to go to a costly tribunal.

Remember, as a director, you were an employee of the company.

Director Redundancy Claim – Criteria For Claiming Redundancy? 

However, to make a claim as a company director for 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);
  • You have been employed on the payroll for at least 2 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 can therefore claim redundancy:

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

Claims For Directors

First, check if your business is Solvent? If so, why do you want to close your business? Perhaps consider a Members Voluntary Liquidation (MVL)?

But if your business is insolvent? Then consider reading what is a Creditors Voluntary Liquidation (CVL). This formerly shuts down your company while dealing with any outstanding issues. Liquidation requires 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.

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

The liquidator will 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, 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;
  • What was your role in the company?

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.

Making your Claim

The average director redundancy pay claim is £10,000

Directors and employees’ claims remain submitted to the Redundancy Payments Service. The appointed liquidator’s team will assist in this process. Once your claim is 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 6 April 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 unpaid wages and six weeks of holiday pay maximum if they are entitled to an outstanding accrued holiday;
  • Notice pay – directors remain entitled to ‘payment in lieu 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) rather than receiving notice.  

Will I be taxed on my redundancy?

The first £30k of redundancy is tax-free. However, holiday pay or pay is given in lieu of notice will be taxed in the same way as regular wages.

Need Advice About Your Circumstances?

Are you a company director considering voluntary liquidation? Maybe you’d like to discuss whether you’re eligible for statutory redundancy pay with one of our team members. 

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