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Official guidance
Employment Income Manual

EIM03600 · Employment income: restrictive covenants

  • EIM03601 · Restrictive undertakings: statutory conditions
  • EIM03602 · Restrictive covenants: consideration taxable as general earnings
  • EIM03603 · Restrictive undertakings: operation of PAYE on consideration
  • EIM03604 · Restrictive undertakings: non-cash consideration
  • EIM03605 · Restrictive undertakings: termination agreements
  • EIM03606 · Restrictive covenants: compromise agreements
  • EIM03610 · Text of Statement of Practice 3/1996
  • EIM03620 · Restrictive covenants: example 1: restrictions in the contract of employment
  • EIM03621 · Restrictive covenants: example 2: total or partial fulfilment of restrictive undertakings
  • EIM03623 · Restrictive covenants: example 3: deductions
  • EIM03624 · Restrictive covenants: example 4: covenants given by directors in company take-over
  • EIM03625 · Restrictive covenants: example 5: non-cash consideration: transfer of asset
  • EIM03626 · Restrictive covenants: example 6: compromise agreements
  1. Employment income: restrictive covenants: contents
  2. Restrictive covenants: example 2: total or partial fulfilment of restrictive undertakings

EIM03621 | Restrictive covenants: example 2: total or partial fulfilment of restrictive undertakings

From HM Revenue & Customs · Employment Income Manual

Section 225 ITEPA 2003

Example 2

An employee signed a termination agreement that contained the following restrictions:

The employee must not:

  • work for any of the named competitor companies (listed in a separate annex)

  • contact any customer or supplier of the employer

  • contact any former colleagues with a view to persuading them to work for a competitor company.

The restrictions applied for a period of 12 months following the date that the employee signed the termination agreement. Consideration was paid in two instalments on the basis set out below:

  • £15,000 on the last day of the month in which the employee signed the termination agreement and

  • £15,000 one year after that date. If the agreement were breached the second instalment would not be paid.

Payment 1 is received on 30 September 2023 and Payment 2 on 30 September 2024.

Comment

Both payments are within Section 225 and assessable as general earnings (see EIM00511) of the year in which they are received: 2023/24 and 2024/25. The first is consideration for giving the undertakings and the second for the "total or partial fulfilment" (see EIM03601 4th bullet).

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