There’s a common misconception that as a limited company director, you’re not entitled to statutory payments if your business closes, as an employee would be. As a limited company director, you are technically employed by your limited company, and therefore, treated accordingly when it comes to statutory payments, such as redundancy pay.
Chris Bristow, a company liquidation expert at Real Business Rescue, sheds light on the redundancy rights of a limited company director, eligibility and the claims process.
What statutory payments are limited company directors entitled to?
When a business is no longer viable and therefore, has no chance of surviving, the only solution may be to voluntarily bring the business to an end through insolvent company liquidation. If you close your business, you may be entitled to redundancy pay, and other statutory payments, such as holiday pay, notice pay and unpaid wages.
Are limited company directors entitled to redundancy pay?
Company directors can benefit from a much-needed windfall at times of financial difficulty to stay afloat, replenish financial health and start afresh. To start a claim for redundancy pay, you must do so within a strict timescale, so it’s best to seek support early.
To qualify for redundancy pay as a limited company director, you must meet the following criteria:
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- Work under a contract of employment for a minimum of two years that is written, oral or implied, rather than a controlling interest only
- Work a minimum of 16 hours weekly
- Company owes you money – for example, PAYE arrears or an initial investment
- Submit your claim to the RPS within 6 months of the redundancy occurring
How much redundancy pay you are entitled to will be determined by several factors, such as:
- Age at the time of redundancy
- Length of service
- Salary taken during this time, at or above the National Minimum Wage
These payments are paid from the National Insurance Fund, through the Redundancy Payments Service (RPS), and are tax-free. Many company directors are unaware that they may be eligible and therefore, miss out on thousands of pounds.
Limited company directors that have been made redundant following the liquidation of their company can claim redundancy pay, currently capped at £700 per week, 8 weeks unpaid wages, 6 weeks holiday pay and 12 weeks’ notice pay, also capped at £700 per week.
To qualify for such payments, you must act fast as strict time limits apply.
What’s the claims process for director redundancy pay?
To submit a claim for director redundancy, you can either do it online or use an intermediary, such as a claims management company to qualify, prepare and submit your claim. While a DIY approach is cheap, it’s crucial to understand the eligibility criteria and provide the appropriate evidence from the get-go to prevent your claim from being rejected and maximise your claim.
When seeking professional support in relation to your redundancy claim, check that the provider is authorised and regulated by the Financial Conduct Authority (FCA).