Redundancy

[billridley]

I know this is not allowed but don't know which rule will stop it.

If I pay myself minimal salary and build up a fund in my account. Why cannot I make myself redundant at the end of the tax year and pay myself (ie my company paying my employee) the tax free limit of £30,000 redundancy payment ??

I then start a new company with a new contract and become an employee of that company ?

[Taxless]

The simple answer is that we are not really talking about a redundancy payment as the business continues, albeit under a new company. You are only closing the company down to avoid (evade) tax and HMRC take a very dim view of Phoenix companies.

HMRC follow the definition of redundancy provided in the Employment Rights Act 1996:
"... an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to:
• the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was employed or
• the fact that the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where he was so employed, have ceased or diminished or are expected to cease or diminish".

I don’t think you can pass the tests.

In addition, in close company cases HMRC tend to argue that lump sum payments only fall within the £30k exemption if they are not otherwise taxable and they suggest that such payments are in fact a payment of earnings.

[billridley]

I thought so

I thought it was too good to be true. Not quite the smart a**e I thought I was. Cheers

[DeludedAussie]

In addition, in close company cases HMRC tend to argue that lump sum payments only fall within the £30k exemption if they are not otherwise taxable and they suggest that such payments are in fact a payment of earnings.

You have a link for that?

If the company wants to wind down then the job is redundant simple

[Taxless]

Sorry DeludedAussie I don't have one, it is just common practice.

Giving £30k away tax-free just goes against the grain and HMRC do have an annoying habit of asking questions.

What the original post implies is that this would be an artificial move, solely to try and save tax.

There is no other commercial justification for it.

You could of course try it, fully disclose it to HMRC (before they come and get you), and then rest easy in your bed. (Wait a minute, was that a jackboot I heard upon the stair?).

Please, don't try it!

[Wanderer]

If the company wants to wind down then the job is redundant simple

Except that in this case the company doesn't want to wind down, the director would start a new company and continue to work in the same industry.

did you also wonder if it would look suspicious for a person earning £7k in salary to get a £30k redundancy payoff?

[SueEllen]

You have a link for that?

If the company wants to wind down then the job is redundant simple

Remember nothing is simple with HMRC.

[Tanya@SC Lee Accountant Ltd]

not a good idea to do this , there could be some better way out there.

Remember nothing is simple with HMRC.