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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Restrictive undertakings: statutory conditions

Section 225 ITEPA 2003 (as amended by paragraph 24 Schedule 7 FA 2008)

Conditions

In order for consideration to be brought into charge by Section 225, the following conditions must be satisfied by the individual:

  • a restrictive undertaking is given in connection with a current, future or past office or employment
  • the undertaking must restrict conduct or activities. It may be absolute or qualified and need not be legally binding.
  • 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.
  • The sum would not otherwise be treated as general earnings (see EIM00511).
  • If an asset or other valuable consideration is given instead of money then the cash value of the asset is charged (see EIM03604).

In addition, the office or employment must be one for which:

  • For periods before 6 April 2008 the earnings fall within Sections 15, 21, 25 or 27 ITEPA 2003 (see EIM40002) or would do so if there were any or
  • For periods after 5 April 2008 the earnings fall within Sections 15 or 27 ITEPA 2003 (see EIM40002) or would do if there were any.

Year in which the charge arises

The charge arises in the year in which the payment is made. If the individual dies before a payment is made it is treated as if it had been paid immediately prior to his death.