Director redundancy claim — the RPS process

The threshold question — was the director actually an employee of the company? The RPS applies the same test as for any employee claim under the Employment Rights Act 1996. Key criteria:

• ›PAYE registration — the director was on the company payroll, with regular salary payments through PAYE.
• ›Contract of employment — written or implied. The director performed work for the company in exchange for salary.
• ›Mutuality of obligation — the company had obligation to provide work; the director had obligation to perform.
• ›Subordination — the director was subject to the control of the company (weak where the director controls the company; examined in detail).
• ›Integration — the director was integrated into the business as a worker (rather than just owning it).

In Buchan v Secretary of State [1997] IRLR 80, the Employment Appeal Tribunal confirmed that majority-shareholder directors can be employees — share ownership doesn’t preclude employment status. The substance of the working relationship matters more than the formal ownership structure.

Pattern 1 — Director on PAYE with regular salary

Most common pattern. Director paid regular monthly salary through PAYE; performs operational role; eligible for redundancy. RPS claim typically straightforward.

Pattern 2 — Director on minimal salary + dividends

Director takes £9,500–£12,500 salary annually plus dividends (tax-efficient remuneration). Still eligible if the salary is paid through PAYE — the amount doesn’t matter, only the employment relationship. Statutory redundancy capped based on weekly pay (currently £719/week from April 2024; check current rates before publication).

Pattern 3 — Director with no PAYE salary

Director takes only dividends, no salary, no PAYE registration. Not eligible for redundancy — the employment relationship doesn’t exist. Common for older companies or family businesses where directors traditionally took dividend-only remuneration.

The RPS pays four heads of claim where eligibility is established. Typical SME director totals (5–10 years’ service on PAYE): £8,000–£25,000. Caps verified from gov.uk before publication — statutory rates uplift in April each year.

• ›Statutory redundancy — age × service × weekly pay (capped). Max ~£21,000 for 20+ years at age 65+ on max weekly pay.
• ›Arrears of pay — up to 8 weeks at the capped rate.
• ›Notice pay — up to 12 weeks (age and service driven), capped.
• ›Accrued holiday pay — up to 6 weeks of unpaid holiday, capped.

• ›Company enters formal insolvency procedure (CVL or administration) — the trigger event.
• ›Director receives RP1 form from the office holder (or downloads from gov.uk) — the claim form for statutory redundancy and arrears.
• ›Director completes the RP1 with employment details — start date, weekly pay, role, salary history.
• ›Office holder confirms the employment information — acts as employer’s representative for the RPS verification.
• ›RPS reviews the claim — typically 3–6 weeks for straightforward claims.
• ›Payment issued — directly to the director’s bank account, less PAYE / NIC on taxable elements.

Most claims are processed without contention. Where the RPS has questions (typically about director-employee status), additional documentation may be requested — employment contract, payroll records, bank statements showing salary receipts.

• ›No PAYE history — director was not on the payroll; no employment relationship existed.
• ›Insufficient evidence of employment — sporadic PAYE payments without a consistent pattern; no employment contract; no operational role evidence.
• ›Wrong procedure — claim made before the company enters formal insolvency, or where the company is struck off rather than placed in CVL / administration. Strike-off does not trigger RPS eligibility.

For directors using the redundancy claim to fund the CVL fee, the timing matters:

• ›CVL fee payable upfront — typically at engagement letter signing or shortly after.
• ›Redundancy claim filed after CVL commencement — the office holder validates the employment information after appointment.
• ›RPS payment received 3–6 weeks after claim submission.

This creates a working capital gap. Two common solutions:

• ›Director funds the CVL fee from personal savings / credit / family loan; reimburses themselves from the RPS payment when received.
• ›IP accepts a deferred fee arrangement specifically tied to the redundancy claim — fee paid on RPS receipt rather than at engagement.

See Liquidating with no money for the broader CVL funding framework.

• ›Statutory redundancy — tax-free up to £30,000 (any excess taxed at marginal rate; rare for SME directors to exceed).
• ›Arrears of pay — taxable through PAYE; RPS deducts at source.
• ›Notice pay — typically taxable as PILON; RPS deducts at source.
• ›Holiday pay — taxable through PAYE; RPS deducts at source.

The net payment to the director’s bank account is after tax deductions on the taxable elements. The director receives a P60-style summary from the RPS for tax return purposes.

For the CVL framework where redundancy is typically claimed, see CVL pillar. For funding the CVL fee where the redundancy claim is the funding source, see Liquidating with no money. For the broader liquidation procedure, see Liquidation timeline.