Redundancy- can you claim redundancy from your own Limited Company?
In the right circumstances a shareholder director / owner of their own Limited Company can claim redundancy payments from the company when they leave the company.
Care needs to be taken that the different hats worn as a director and an employee are considered. This can mean that if you have already accepted a job elsewhere then it would be difficult to consider yourself as having been made redundant. You also need to consider how practically the company will be run if you are no longer working or as a director. If you continue to act then your termination is not real.
There are two forms of redundancy payment to consider, statutory redundancy and non-contractual redundancy payments that are voluntarily paid by the company.
Access to statutory redundancy is assessed according to your circumstances and meeting the criteria set out in the regulations.
Most contractors do not have a contract of employment, but that does not mean payments are automatically non contractual, and the absence of the contract means that consideration should be given to the facts of what has happened in the past.
Non-contractual payments for redundancy and compensation for loss of office (as a director) should be considered against the background of your salary, the position held and the period of time you have been with your company. The amount of any payment must take into account these factors and you will not automatically be entitled to claim the full £30,000 tax free amount.
The company would like to claim tax relief for the payment against its corporation tax. The payment must therefore meet the criteria for a genuine business expense. Excessive payments would most likely be challenged as not wholly and exclusively for the purpose of the company’s business.
You should also remember that claiming the tax free termination payment is made through your personal tax return and this may also be challenged by HMRC. The likely outcome of the enquiry will depend on the facts.
So, in conclusion, yes you should consider whether as a director / employee you are entitled to be paid redundancy. Always make sure the payment is fully documented, alongside the facts considered, and that the amount is reasonable and reflects those facts. But also be aware that the amount can be challenged by HMRC.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.