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HMRC internal manual

Employment Income Manual

Text of Statement of Practice 3/1996

Section 225 ITEPA 2003 and SP 3/1996

The full text of Statement of Practice 3/1996 published on 4 April 1996 is set out below.


  • Section 313 ICTA 1988 is now Sections 225 to 226 ITEPA 2003
  • Schedule E is now “employment income”
  • “Inland Revenue” is now HMRC

“1. Section 313 ICTA 1988 imposes a charge under Schedule E on payments made to individuals for undertakings, given in connection with an employment, which restrict their conduct or activities.

  1. The financial settlement relating to the termination of an employment may contain terms whereby the employee agrees to accept the termination package in full and final settlement of his or her claims relating to the employment, and/or may expressly provide that the employee should not commence or, if already commenced, should discontinue legal proceedings in respect of those claims. These may relate to claims at common law arising from the contract of employment or to claims arising under employment protection or other legislation. The settlement, therefore, seeks to avoid legal dispute or proceedings, for example before a Court or an Industrial Tribunal, in connection with those rights. The termination settlement may also reaffirm undertakings about the individual’s conduct or activities after termination which formed part of the terms on which the employment was taken up.

The Inland Revenue will accept that no chargeable value will be attributed under Section 313(2) to such undertakings by an employee or former employee.

  1. But this does not affect the application of Section 313 to sums that are attributable to other restrictive undertakings which individuals give in relation to an employment, whether these undertakings are contained in a job termination settlement or otherwise.”