Reply to: Redundancy payments to staff when closing one's company?

[JohntheBike]

That would be harder to argue since the company is not being forced to closed, it can still take on business direct where IR35 would not apply, however until that happens the cash flow impact of deemed payments makes keeping on staff untenable.

If it got to the point where closure due to lack of business was triggering insolvency then general opinion seems to be that you can claim statutory redundancy provided you can prove you had a contract of employment, written or oral, and had been employed for more than two years. This would then be overseen by the Insolvency practitioner dealing with the company and you would be treated as a preferential creditor. What you would not be able to do was make an arbitrary payment in compensation above the statutory amount as you would with a normal employee being made redundant.

How Does Redundancy Pay Work For Company Directors? | Clarke Bell
Directors: Making yourself redundant? By Nichola Ross Martin | AccountingWEB
A guide to redundancy pay for directors | The Gazette

yes, agreed. But see my subsequent post. A little "persuasion" might encourage HMRC to allow the payment, at least to the non fee earning director.

"If the company director can prove to the liquidator that they had a practical and ongoing role in the running of the company, took a salary using the PAYE scheme and had a similar relationship to the company as other employees, they may be eligible for statutory payments."

In my case, and I guess in that of many others, I and my wife have paid PAYE and NI from the outset, over 23 years, and in recent years MyCo has also paid the minimum wage. We don't have written contracts, but verbal contracts. However, the issues will only become clear as and when I'm obliged to close the company. Just to clarify, I'm talking about MyCo paying the redundancies and having such payments offset against corporation tax and not claiming any payments from the state.

[JohntheBike]

There are a range of conflicting opinions across the interweb on this point. I guess that one takes one's chances should it come to this.

well, I guess chance would not come into it. If no redundancies are paid prior to company closure, it would by necessity be debated at company closure time. So HMRC may or may not allow it at that time. However, if there would be a possibility of determining the issue in court, then HMRC are likely to concede.

[DaveB]

which is also the point I'm making, i.e. if the company is forced to close as a result of events not under its control, are the directors entitled to redundancy payments? Note that the quoted case was in the EAT, so case law was set.

That would be harder to argue since the company is not being forced to closed, it can still take on business direct where IR35 would not apply, however until that happens the cash flow impact of deemed payments makes keeping on staff untenable.

If it got to the point where closure due to lack of business was triggering insolvency then general opinion seems to be that you can claim statutory redundancy provided you can prove you had a contract of employment, written or oral, and had been employed for more than two years. This would then be overseen by the Insolvency practitioner dealing with the company and you would be treated as a preferential creditor. What you would not be able to do was make an arbitrary payment in compensation above the statutory amount as you would with a normal employee being made redundant.

How Does Redundancy Pay Work For Company Directors? | Clarke Bell
Directors: Making yourself redundant? By Nichola Ross Martin | AccountingWEB
A guide to redundancy pay for directors | The Gazette

[wattaj]

which is also the point I'm making, i.e. if the company is forced to close as a result of events not under its control, are the directors entitled to redundancy payments? Note that the quoted case was in the EAT, so case law was set.

There are a range of conflicting opinions across the interweb on this point. I guess that one takes one's chances should it come to this.

[JohntheBike]

This is the tack that I'm currently exploring.

which is also the point I'm making, i.e. if the company is forced to close as a result of events not under its control, are the directors entitled to redundancy payments? Note that the quoted case was in the EAT, so case law was set.

[wattaj]

In the case of contractors, if you employ your spouse and pay them a wage then you may be able to use redundancy payments to them as a way to get money out of the business tax free. A change of circumstances due to IR35 could be argued as a reasonable cause for that redundancy since with all income now going via deemed payments to the contractor there is nothing left to pay their salary.

This is the tack that I'm currently exploring.

[DaveB]

An FTT does not set case law or precedant. But that aside, you cant re-employ someone who you made redundant within a fairly long timescale, else their redundancy will be taxed at the higher rate.

Actually you can. There is no statutory period involved beyond ensuring there is no continuity of employment from en employment rights perspective. There are exceptions, such as when workers may be sent hone between jobs in the normal course of employment, but otherwise that's it. HMRC *may* look closer if they do follow up a SATR that included a VR payment but it's not a given that they will.

Can I Re-Employ Someone I Made Redundant? - The People HR Blog People HR Blog
Redundancy and re-employment waiting period - Specialist HR Solutions

In the case of contractors, if you employ your spouse and pay them a wage then you may be able to use redundancy payments to them as a way to get money out of the business tax free. A change of circumstances due to IR35 could be argued as a reasonable cause for that redundancy since with all income now going via deemed payments to the contractor there is nothing left to pay their salary.

[wattaj]

Interesting, if somewhat old, article by Nicola Ross-Martin on this subject: Directors: Making yourself redundant? By Nichola Ross Martin | AccountingWEB

[malvolio]

An FTT does not set case law or precedant. But that aside, you cant re-employ someone who you made redundant within a fairly long timescale, else their redundancy will be taxed at the higher rate.

[JohntheBike]

That's quite a different set up to us though. Very few of us pay that much and have contracts of employmeny so not that useful.

granted. but it is case law and HMRC are very fond of quoting case law in their favour which is loosely connected with any argument they are having with a taxpayer.

[northernladuk]

but that could equally have applied in the recent FTT case. But the FTT found in favour of the appellant and allowed redundancy payments to be claimed.

the FTT case in question -

Secretary of State for Business, Innovation and Skills v Knight UKEAT/0073/13/RN

It's actually the EAT judgement, so is case law.

That's quite a different set up to us though. Very few of us pay that much and have contracts of employmeny so not that useful.

[JohntheBike]

The difference is between being able to find a client and being able to find business you are prepared to take on.

If the directors are convinced that they should refuse to accept or even search for certain business, then it most certainly is within their control.

If the directors are convinced that they should refuse to accept or even search for certain business, then it most certainly is within their control

but that could equally have applied in the recent FTT case. But the FTT found in favour of the appellant and allowed redundancy payments to be claimed.

the FTT case in question -

Secretary of State for Business, Innovation and Skills v Knight UKEAT/0073/13/RN

It's actually the EAT judgement, so is case law.

[WTFH]

so, if YourCo were not able to find a new client, what would happen then? As I said, the crux of the recent FTT case was that circumstances out of the control of the directors forced the company to close. The company can still make its employees redundant and re-employ them at such time that it gains a new contract, if ever.

The difference is between being able to find a client and being able to find business you are prepared to take on.

If the directors are convinced that they should refuse to accept or even search for certain business, then it most certainly is within their control.

[JohntheBike]

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

so, if YourCo were not able to find a new client, what would happen then? As I said, the crux of the recent FTT case was that circumstances out of the control of the directors forced the company to close. The company can still make its employees redundant and re-employ them at such time that it gains a new contract, if ever.

[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.