Closing a limited company after furlough – director’s entitlements & more

New legal guidance has been issued effective from 30th July 2020 to confirm the rate your redundancy entitlements should be paid at if you’ve been furloughed

It’s been a turbulent time for many over the last few months, with various levels of ambiguity over what payments you, as a director, may be entitled to or be able to access under one scheme or another.

 

For those who are in the unfortunate position of having to close their companies for financial reasons, new legal guidance has been issued effective from 30th July 2020 to confirm the rate your redundancy entitlements should be paid at if you’ve been receiving furlough payments.

 

This guidance applies to the directors of limited companies, whether you’ve been receiving furlough payments or not.

 

The qualifying condition is that at least some of your salary payments should normally or historically have been paid through PAYE (regardless of whether you’ve received dividend payments on top or not).

 

If you’ve been acting for the company on a daily basis and receiving at least some salary through PAYE, then are for all intents and purposes you’re an employee of the company and the following applies to you, regardless of whether you’re the sole employee of the company, or if you have several employees.

 

If the business is closing for financial reasons, all employees – including the company’s directors – are entitled to receive redundancy payments where due and any monies that are due for arrears of pay and holiday pay.

 

Crucially, if the business doesn’t have the money to make the payments which are due itself, there’s support available from the Redundancy Payments Service, which is part of The Insolvency Service.

 

You can apply to the Redundancy Payments Service for any payments due for:-

 

  • Redundancy Pay
  • Pay Arrears*
  • Holiday pay*
  • Claims for loss of Statutory Notice*

*In order to claim Arrears of Pay, Holiday Pay and claims for loss of notice, the company must have entered formal insolvency proceedings. Whilst Redundancy Assist can’t advise or arrange this for you, we’ll be happy to put you in touch with a business we trust who can. It usually takes approx. two weeks to place a company into liquidation and the fees for this would need to be agreed directly with the Insolvency Practice. Fees for liquidation tend to be in the region of £3000 to £5000, depending on the complexity of the case. 

 

The recently issued guidance that’s been issued is that redundancy payments, holiday pay and notice payments should be made at the normal salary rate, not at the reduced furlough rate.

 

You should receive a paid notice period of your employment ending according to your statutory entitlement, which is one week for every full year of service you’ve given the company up to a maximum of 12 weeks. Again, this should be paid at the normal salary rate, not the reduced furlough rate.

 

Here’s a typical example:

A Director’s Redundancy Entitlement Claim for a director aged 48 with six full years of service working full time who has historically been paid £1000 pcm through the company PAYE scheme (with or without dividends on top):

 

Redundancy claim = £3,139.20

Arrears of Pay due = £2,790.40 (maximum eight weeks, pre-furlough entitlement owing)

Outstanding Holiday pay = £697.60 (ten days)

Claim for loss of notice = £2,092.80

 

Total gross award = £8,720 (Tax and National Insurance deductions will be made at source)

 

If you’re in any doubt about where you stand regarding your and/or your employees’ entitlements, don’t hesitate to contact us.

 

We’ll be happy to provide a free assessment, explain the process and the requirements for making a claim to the Redundancy Payments Service.

 

If you’re happy to go ahead and choose Redundancy Assist to manage your claim to the Redundancy Payments Service, once officially instructed we charge a clear 15% plus VAT on the net payment received. That’s it – no hidden extras or last-minute additions.