Written by Paul Chappell
Published on December 14, 2009

Although this is a grey area it should not automatically be assumed redundancy payments to Directors cannot be made. Employment case law has set the definition for redundancy.

Redundancy involves an employee finding himself without a job through circumstances over which he has no control. It would be assumed that a Director would have control over the circumstances. However consideration should be given to situations whereby a small company, say 2 Directors and shareholders, lose their one and only contract through no fault of their own.

If the Directors have contracts of employment,whether verbal or written, and are paid above the National Minimum Wage then consideration should be given to the validity of a redundancy payment assuming the company has sufficient funds.

It is an interesting concept but caution should be exercise as it is likely HMRC will seek to treat payments as 'distributions' and therefore taxable. There is no Tax Case to rely on and until such a case is taken this will remain a grey area.