Redundancy payments to staff when closing one's company?

[wattaj]

Does anyone have any guidance on an acceptable level of redundancy payment for staff who are not directors/shareholders when closing one's company?

The statutory minimum is a bit derisory and a higher level would be beneficial to both the staff member and and the company.

Cheers.

[BrilloPad]

JPM paid 1 month for each year of service. Minimum 3 years.

I got laid off after 18 months. I got 3 months. And I was on gardening leave for 3 months - including 1 month in a contract elsewhere.

[ladymuck]

You can pay whatever you like but there is a limit before it all becomes taxable. It may be worth looking at pension contributions if that makes for a more attractive package

[GhostofTarbera]

£30K tax free - fill your boots

After final board meeting in Las Vegas

You turning permie?


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[wattaj]

£30K tax free - fill your boots

After final board meeting in Las Vegas

The statutory maximum is £15k, but there don't appear to be any firm rules for companies with fewer than 20 staff. I'm not sure that I'd be eligible, but I do have one staff member that could benefit before I rip the rest of the cash out of the company in pension contributions, capital distributions, etc.

You turning permie?

Could be Old Boy, but I'm just exploring my options for the time being. Sad times; I haven't had a permie job in almost 25 years.

[JohntheBike]

The statutory maximum is £15k, but there don't appear to be any firm rules for companies with fewer than 20 staff. I'm not sure that I'd be eligible, but I do have one staff member that could benefit before I rip the rest of the cash out of the company in pension contributions, capital distributions, etc.



Could be Old Boy, but I'm just exploring my options for the time being. Sad times; I haven't had a permie job in almost 25 years.

We've had this debate previously. There are conflicting opinions. Some say that director/employees are not entitled to redundancy payments. But a recent case in the FTT seems to contradict this. The director's company was wound up as a result of external pressures and not as a result of the directors wanting to liquidate voluntarily. My accountant contends that as MyCo has paid the minimum wage to each director for the required period and the appropriate levels of NI and tax were paid, then both directors will be entitled to redundancy payments. However, I guess there will be a contradictory opinion voiced here.

[malvolio]

Directors can't claim redundancy if they are the ones maknig the decision to close the company. If someone else, such as a liquidator or trade creditor, is driving the closure, then they can, in theory, assuming there are funds remaining which, logically, there won't be.

There is a statutory minimum after two (?) years service, but no maximum: from memory only the first £30 is tax free, thereafter it's treated as income.

[JohntheBike]

Directors can't claim redundancy if they are the ones maknig the decision to close the company. If someone else, such as a liquidator or trade creditor, is driving the closure, then they can, in theory, assuming there are funds remaining which, logically, there won't be.

There is a statutory minimum after two (?) years service, but no maximum: from memory only the first £30 is tax free, thereafter it's treated as income.

Given the April 2020 issues, what about this scenario?

YourCo's year end is 31/12 of the year. At 01/01, YourCo has sufficient funds to pay any outstanding PAYE and NI liabilities as well as any corporation tax liabilities and including any possible redundancy liabilities. As a result of client actions related to the April 2020 changes, the fee paying director's contract is not renewed and no further independent contracts are attainable. The directors claim redundancy payments which should be tax free and be offset against the corporation tax bill.

So, the company was forced to cease trading by external events beyond the control of the directors. The recent case in the FTT which found in favour of the director claiming redundancy hinged on the fact that external pressures were the cause of the liquidation, not the choice of the director. Clearly an issue to be tested in the FTT?

[malvolio]

Given the April 2020 issues, what about this scenario?

YourCo's year end is 31/12 of the year. At 01/01, YourCo has sufficient funds to pay any outstanding PAYE and NI liabilities as well as any corporation tax liabilities and including any possible redundancy liabilities. As a result of client actions related to the April 2020 changes, the fee paying director's contract is not renewed and no further independent contracts are attainable. The directors claim redundancy payments which should be tax free and be offset against the corporation tax bill.

So, the company was forced to cease trading by external events beyond the control of the directors. The recent case in the FTT which found in favour of the director claiming redundancy hinged on the fact that external pressures were the cause of the liquidation, not the choice of the director. Clearly an issue to be tested in the FTT?

I would say that the business in that case does not need to close, merely to find a new client...

[wattaj]

There is a statutory minimum after two (?) years service, but no maximum: from memory only the first £30 is tax free, thereafter it's treated as income.

Yes, there is a statutory minimum after 2 years, but this is capped at £15,750.

The rules are more flexible for companies with fewer than 20 staff, but there is no concrete guidance as to what would be deemed to be reasonable in this scenario.

I cannot find a reference to the mythical £30k anywhere bar these boards.

Ah, ok... there is tax due if one defines a redundancy payment scheme above the statutory minimum for one's company, but only on amounts on amounts greater than £30k.