Posted on: Friday 28th May, 2021
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?
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?
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?
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:
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.
Does accepting a new job offer before the date of redundancy prevent a director making a claim for redundancy to the RPS
If you are looking to close your limited company, you may have attempted to strike it off by submitting a DS01 form to Companies House. This process is also sometimes referred to as dissolving or company dissolution.
A Creditors’ Voluntary Liquidation (CVL) is an official procedure whereby a company’s assets are liquidated in order to pay creditors. It’s typically initiated by directors when their company becomes insolvent and there is no hope of business recovery.
May I take this opportunity to thank you and your team for all your professional help in securing for myself and my wife, redundancy pay. I would have no hesitation in recommending RCUK to assist them.Tom Harrison Managing Director of a construction company