Company directors, if they are employees, are entitled to claim redundancy pay from the government if their company goes into liquidation, regardless of whether the liquidation is voluntary or compulsory liquidation.

In terms of how quickly you, as a director, can receive your statutory redundancy, you can start the process as soon as a liquidator is appointed, and typically, it may take 3-4 months to receive your money.

We advise directors on all types of business financial issues and insolvency. If you want to find out about your options, risks and rights, please do call us for initial free advice.


What is Director’s Redundancy Pay?

Director redundancy pay is a payment made to directors of insolvent companies who qualify as employees. It compensates them for the loss of their job when the company closes down.

Statutory redundancy pay has a cap of £16,320 and can be a lifeline during the difficult circumstances of a liquidation.

The amount of redundancy pay will depend on a variety of factors such as age, employment length, and salary.

Eligible directors can get statutory redundancy pay even if the company enters involuntary liquidation.

What’s the Eligibility for Directors’ Redundancy Payments?

Directors are eligible for redundancy if their company becomes insolvent, providing they are legally classified as employees.

Any director seeking redundancy pay must be regarded as ‘an employee of the limited company’ in addition to his/her role as director (i.e. his/her role was more than non-executive).

Director redundancy pay is a payment made to directors of insolvent companies who qualify as employees. It compensates them for the loss of their job when the company closes down.

Do you qualify for redundancy pay?

To receive redundancy pay, directors must meet the following criteria:

  • Have an employment contract (written, verbal, or implied)
  • Work at least 16 hours per week for the company
  • Owe wages, PAYE, or other payments from the company

Eligible directors can get statutory redundancy pay even if the company enters involuntary liquidation. The amount is calculated based on:

  • Age
  • Length of continuous service (capped at 20 years)
  • Weekly salary (capped at £571)

Here is the statutory formula:

  • Age 18-22: 0.5 week’s pay per year of service
  • Age 22-41: 1 week’s pay per year of service
  • Age 41+: 1.5 week’s pay per year of service

The maximum redundancy payout is £16,320. Payments come from the National Insurance Fund and are tax-free up to £30,000.

Directors may also claim unpaid wages, unpaid notice pay, and accrued holiday pay on top of redundancy.

Overall, the average director redundancy claim is £9,000-£12,000.

Do Directors Need to Have an Employment Contract to Qualify for Redundancy Pay?

The director must have worked under an employment contract for at least the last two years (this may be written, oral or implied).

The director’s work week must be a minimum of 16 hours.

The director must be owed money by the company (whether it be PAYE arrears, for example, or an initial seed capital investment).

What if there’s no Employment Contract for the Director?

Especially in instances where the director has founded the company, there may be no written employment contract.

During a company liquidation, it will be up to the liquidator to assess whether a director without a written employment contract has a legitimate claim on redundancy pay.

Where directors have opted not to receive a wage and only receive dividends as a shareholder, this will automatically exclude them from statutory redundancy pay.

How are Directors’ Redundancy Payments Calculated?

HMRC offer a handy redundancy payment calculator which you can find here. Your redundancy application will be based on:

  • your current age
  • your length of service to the company (with a 20-year maximum)
  • your gross weekly pay (up to a maximum of £479 per week)

Holiday pay

Also, you may claim a maximum of six weeks accrued holiday pay, and up to 8 weeks of unpaid wages.

Notice pay

For each full year of employment, a director has served, the RPS calculates one week’s notice being applicable. In cases of redundancy, pay instead of notice applies which means that a director may be eligible for up to 12 weeks additional redundancy pay

Is Director’s Redundancy Pay Taxable?

Like other employees, directors who are eligible for redundancy will receive the first £30,000 as a tax-free statutory redundancy payment.

How to Apply for Directors Redundancy?

The first thing to do will be to discuss your situation with the insolvency practitioners handling your liquidation. They will advise you on the best course of action, part of which will be filling in the forms available here.

Appling to the Redundancy Payments Service is a straightforward process, as follows

You will need to ask your insolvency practitioners for the case reference number. You will also need your National Insurance number to hand.

Director Redundancy Application Checklist

  1. Determine if you qualify as an “employee”
    • Did you have a contract of employment (written, verbal, implied)?
    • Did you work at least 16 hours per week for the company?
    • Were you owed wages or other payments from the company?
  2. Calculate your potential redundancy pay
    • Account for your age, length of service, and weekly wages
    • Use the government’s redundancy calculator for an estimate
  3. Gather supporting documents
    • Employment contract
    • Payslips
    • Company records showing hours worked
    • Notice of liquidation
  4. Get the case reference number
    • Request this from the insolvency practitioner handling the liquidation
  5. Submit your claim
    • Complete the redundancy claim form
    • Attach supporting documents
    • Provide your National Insurance number
  6. Wait for claim processing
    • This usually takes 3-4 months
  7. Receive your redundancy payment
    • If approved, the payment will come from the National Insurance Fund
    • The first £30,000 is tax-free

Tips for Directors Claiming Redundancy

  • Keep detailed records of your employment – Having documentation like contracts, payslips, and hour logs will help support your claim.
  • Apply as soon as possible – There are strict time limits for claiming redundancy. Don’t delay submitting your application.
  • Get professional help – Consider having an insolvency practitioner assist with your claim to avoid mistakes.
  • Calculate your pay accurately – Make sure you apply the correct formula based on your age and service.
  • Provide all requested information – Failing to submit required documents is a common reason claims get rejected.

Common Mistakes to Avoid

  • Assuming you’ll automatically qualify – Meet with the liquidator first to confirm your eligibility as an “employee.”
  • Forgetting supporting documents – Applications often get held up or rejected for lack of evidence like contracts.
  • Using the wrong weekly pay figures – Base this on your gross pay, capped at £571 per week.
  • Miscalculating length of service – Only count your continuous years of employment, up to the 20 year cap.
  • Missing the submission deadline – Claims must be made within 6 months in most cases.

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