Posted on: Wednesday 23rd June, 2021
As the coronavirus pandemic places unprecedented pressure on SMEs across the country, it is evident that employment rates are at risk, despite urgent financial support offered through the Coronavirus Job Retention Scheme (CJRS). As the furlough scheme ends on 30 September 2021, it is forecasted that employee redundancy rates are expected to soar if businesses fail to access restructuring support in due course.
The number of employees on payroll currently stands at 28.5 million and is slowly gaining strength as we exit out of lockdown, however, this remains 553,000 below pre-pandemic levels, which shows that economic recovery is still underway. To compensate for the shortfall in income due to the Covid-19 pandemic, businesses may make staff redundant to release cash in the business. Failure to address cash flow problems early could push the business into financial distress, eventually leading to company liquidation.
If you are made redundant during the coronavirus pandemic, or while on furlough/flexible furlough, here are the key areas you should understand.
If you were made redundant while on furlough or flexible furlough, your entitlement for redundancy pay will not be affected. Your employer must calculate your redundancy payment based on your usual working hours and pay. If your employer did not top up your wages to 100%, you may be able to claim the remaining percentage. As of 1 December 2021, furlough grants cannot be used to subsidise redundancy payments and statutory/contractual notice periods.
If you are a company director, and your company enters liquidation as your business is insolvent, you may be able to claim director redundancy pay. You may also be entitled to other statutory payments, such as holiday pay and notice pay. To establish if you are eligible for director redundancy, you will need to actively contribute to the business and fulfil the following conditions:
The average claim for director redundancy is £9,000, and the amount you may be entitled to will vary based on your age, length of service and gross weekly pay.
The reality of the coronavirus pandemic includes job losses as businesses struggle to stay afloat and scramble to raise enough money to pay staff. Understanding your tax position when being made redundant can help you calculate how much you are likely to receive after the payment is made.
Redundancy payments up to £30,000 are tax-free as they provide compensation for job loss and are therefore subject to special tax treatment. If you are entitled to other statutory payments, such as notice pay or holiday pay, these payments will be subject to tax and National Insurance Contributions (NIC), as standard. You should take into consideration if your redundancy payment, along with other income will impact your overall tax position, i.e. pushing you into a higher rate tax bracket.
If your business is insolvent and has therefore been liquidated, you will be able to submit a claim for director redundancy, however, you must do so within one year of your company entering liquidation. You will also be able to submit a claim for director redundancy pre-liquidation.
If you have been made redundant because of the coronavirus pandemic, your redundancy payment may only provide financial security for a limited time. Review your financial commitments, such as mortgage payments, utility bills, grocery expenses, and match this against your income and assets. If you are likely to run out of money, you will need to access urgent financial support.
If you can minimise outgoings and reduce monthly instalments by settling debts or making overpayments, consider the short and long-term implications of doing so. Partially settling debts can also spare money that would otherwise be used towards interest payments.
If you are running out of money as you have been made redundant, you may consider requesting a payment holiday to prevent your financial position from deteriorating.
If you were previously mulling over entering retirement, being made redundant may provide the ideal opportunity to test the waters. If you have enough money in your savings and pension pot to pay off loans and maintain your standard of living, you may consider retiring. Your daily expenses are likely to significantly reduce after debts have been settled, making early retirement achievable.
Your pension will be protected by the Pension Protection Fund, so once you reach the pension age, you will be able to access 94% of your pension if your employer becomes insolvent. If you are yet to reach pension age, you may wish to boost your pension contributions using your redundancy payment, however, take note of where you stand against the pension contribution limit.
If your business is insolvent, you may consider formally closing your business, such as a Creditors’ Voluntary Liquidation. This process should be handled with care and you should carefully understand the rights of employees when making them redundant, including when calculating redundancy pay.
As a company director, you may also be entitled to director redundancy as you are classed as an employee of the company. We can help prepare and process your claim for director redundancy pre-liquidation and post-liquidation. We offer a free consultation and can provide a free director redundancy pay quote, contact a member of the Redundancy Claims team for more information.
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.
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 Director of a professional services firm