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Director Redundancy PAYE vs Dividends

Posted on: Friday 28th May, 2021

Director Redundancy PAYE vs Dividends

Can I claim director redundancy pay if I pay myself through PAYE or Dividends?

Although liquidating a company is a measure of last resort, there are benefits of entering Creditors’ Voluntary Liquidation (CVL) when financial decline cannot be reversed. One of these is the potential to claim director redundancy.

A successful director redundancy claim could provide the funds to pay for voluntary liquidation – a process that minimises creditor losses and protects you from misconduct allegations. Director redundancy pay is only available under certain conditions, however. 

One of these is to be in receipt of a regular salary through the Pay As You Earn (PAYE) scheme. So if you take dividends for all or part of your remuneration, are you still eligible for redundancy and what is the difference between PAYE and dividends?

What is PAYE?

If you earn a salary under PAYE, it means the income is taxed at source by your employer, i.e. the company. When you’re a company director and receive a salary via PAYE, it can suggest that you’re also an employee of the company.

Along with working under a contract of employment, it’s an important element in the assessment of eligibility for director redundancy. So might you also be eligible if you take dividends?

What if you’re paid in dividends?

If you only take dividends as a director, with no regular salary, you won’t be eligible for director redundancy pay. Many directors take a combination of the two, however – typically a small salary topped up with dividend payments throughout the year.

So does this mean you can claim director redundancy if you take a PAYE salary and dividends?

Redundancy claims are a very professional company, Caroline who is dealing with our case is friendly, compassionate and very clear in explaining everything during this difficult time. The service we have received has been amazing, Thank you.
Tina Hill
Tina Hill

Director redundancy eligibility criteria

Director redundancy is remunerated only against PAYE. As long as you’re regarded as an employee of the company, you may be able to make a claim for redundancy pay and other statutory entitlements.

You need to consider the following:

  • Do you have a contract of employment? It can be written, oral, or implied
  • Have you worked for two continuous years for your limited company?
  • Did you work for 16 hours per week or more during this time?
  • Have you taken a regular salary via PAYE? (You may have taken dividends as well)
  • Was your role in the company a practical one rather than advisory?
  • Does your company owe you money?

Taking only dividends from the company isn’t sufficient to qualify you for director redundancy, and with the average claim being £9,000 it’s worthwhile setting up your remuneration so that your status as employee is undeniable.

If your company declines and faces liquidation, being able to claim redundancy pay opens up more choice in terms of the type of liquidation you follow. Although CVL attracts professional fees, it can protect you from potentially serious allegations of misconduct.

To find out if you’re eligible for director redundancy, and for further information on how to make a claim, please get in touch with Redundancy Claims UK. We operate a network of offices nationwide and our expert team will arrange a free, same-day consultation.

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