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

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 2003 and Payment 2 on 30 September 2004.

Comment

Both payments are within Section 225 and assessable as general earnings (see EIM00511) of the year in which they are received: 2003/04 and 2004/05. The first is consideration for giving the undertakings and the second for the "total or partial fulfilment" (see EIM03601 4th bullet).