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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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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 employeesigned the termination agreement. Consideration was paid in two instalments on the basisset 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.


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).