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Restrictive covenants

These are undertakings given by employees during employment or on termination which restrict their conduct or activities. There is a specific charging provision which ensures that payments for restrictive covenants made in connection with current, future or past employments or offices are taxable as earnings.

PAYE treatment

ITEPA 2003, s 225 taxes payments made to an individual for entering into restrictive covenants. In order for consideration to be brought into charge by ITEPA 2003, s 225, the following conditions must be satisfied by the individual:

1. •

   a restrictive undertaking is given in connection with a current, future or past office or employment

2. •

   the undertaking must restrict conduct or activities. It may be absolute or qualified and need not be legally binding.

3. •

   a payment is made in respect of the giving of the undertaking or its partial or total fulfilment. It does not matter to whom the payment is made.

4. •

   the sum would not otherwise be treated as general earnings

5. •

   any earnings