Most company directors are well aware of the statutory redundancy payments their employees can claim during insolvency but remain unaware that they may also be entitled to claim.
Where a claim succeeds it can be a real lifeline at the point the company closes. How much you receive depends on your age, your length of service and your weekly pay, subject to the statutory caps set out below, so it varies considerably from one director to the next.
If your business is struggling financially and closing the company seems to be the best solution to HMRC debts, creditor pressure and constant cash flow concerns, you may be able to claim director redundancy pay.
What is Directors’ Redundancy Pay?
Directors’ Redundancy Pay is a financial compensation for directors who can establish that they were also employees of their company and are facing redundancy due to the company’s liquidation. This payment is determined by factors like how long they worked there, their age, and their salary. It offers financial support to directors during the period after their company has closed.
Can I Claim Redundancy if my Company Goes Bust?
If you are the director of an insolvent company and you choose to liquidate it, you could be entitled to redundancy payments. The two-year requirement is about you, not the company: statutory redundancy pay needs at least two years’ continuous employment with the company.
You may also be entitled to other statutory payments such as unpaid wages, holiday pay, and notice pay. To claim these statutory payments, you must be able to prove that you have been operating as an employee of the company.
To determine your employment status, you will be asked by the liquidator to complete an Insolvency Service questionnaire. The questions you need to answer will focus on:
- Whether you have a written, oral or implied contract of employment;
- If the money claimed is owed by the insolvent company;
- What you actually did for the company, what you were paid, and how the relationship worked in practice;
- Whether your role was more than non-executive or advisory.
Being paid through the PAYE system is the strongest single piece of evidence, and P60s, payslips and bank statements showing regular payment carry a lot of weight. It is not decisive on its own: the Redundancy Payments Service looks at the relationship as a whole, including whether the pay met the National Minimum Wage and whether the contract was actually followed. If you took most of your income as dividends, employment status is harder to establish, but not automatically impossible.
How to Check if you can Apply for Redundancy Payments as a Company Director
Claims for redundancy payments are made through the Redundancy Payments Service, part of the Insolvency Service, using the online claim service. Your liquidator gives you the case reference number, which begins CN, and you claim with that, your National Insurance number and an email address. You do not need to send evidence of your employment status with the claim; the Insolvency Service asks for it afterwards. Loss of notice pay is claimed separately, once the notice period has ended.
The deadline for making a claim is usually six months from the date of your dismissal, although this can be extended to 12 months in some circumstances.
How Much can you Claim?
Like employees, company directors are entitled to claim for a number of statutory payments. That includes:
- Redundancy pay – for dismissals on or after 6 April 2026 a week’s pay is capped at £751 and the maximum statutory redundancy payment is £22,530. Lower caps apply to earlier dismissals, so the date your employment ended is what matters.
How Much Redundancy Does the Government Pay?
- Under 22 – half a week’s pay for each year of service in which you were under 22;
- 22 to 40 – one week’s pay for each year of service in which you were aged 22 to 40;
- 41 and over – one and a half week’s pay for each year of service in which you were 41 or older. Only the last 20 years of service count.
- Salary and holiday pay – up to eight weeks of unpaid wages and up to six weeks of holiday pay accrued but not taken in the twelve months before the insolvency. The same £751 weekly cap applies to each.
- Notice pay – where employment ended without the proper notice, you can claim statutory notice pay of one week for each complete year of employment, up to a maximum of twelve weeks, again subject to the £751 weekly cap. Anything you earned or could reasonably have earned during the notice period is deducted.
Eligibility Criteria for Directors Redundancy
To be eligible for Directors’ Redundancy Pay after insolvency, the criteria are:
- Employee Status: The director must have been an employee of the company. This employment can be under a written, verbal, or implied contract, demonstrating an employee-director relationship.
- Length of Service: The director needs to have been continuously employed by the company for at least two years. This continuous service is key to qualifying for redundancy pay.
- Evidence of the employment: there is no minimum number of hours. The old 16-hour question was removed from the Insolvency Service’s guidance in September 2022. What matters is being able to evidence a genuine employment relationship, through payslips, P60s, bank statements showing regular payment, and a contract that was actually followed.
How Much tax will I pay on my Redundancy?
The first £30k of redundancy is tax free. However, other elements of your redundancy package – for example holiday pay, or pay given in lieu of notice, will be taxed in the same way as normal wages.
Need Advice about Your Situation?
Are you a company director considering a voluntary liquidation? Perhaps you’d like to discuss whether you’re likely to eligible for statutory redundancy pay with one of our experts? For confidential, no-obligation advice, please contact us today on 0208 444 3400.