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HMRC internal manual

Employment Income Manual

Restrictive covenants: example 5: non-cash consideration: transfer of asset

Section 226 ITEPA 2003

Example 5

In a termination agreement a departing employee accepts the following restrictions to future conduct and behaviour. The employee will not:

  • work within a 10 mile radius of the company premises
  • contact any customer or supplier of the employer.

Both restrictions apply for a period of 12 months after cessation of employment.

In consideration for giving the undertakings the employee receives £20,000 in cash. In addition, the company car formerly provided is transferred. It is valued at £8,000.


The sum of £20,000 is within Section 225 ITEPA 2003 as is the value of the car by virtue of Section 226.

The payer should operate PAYE on £20,000 (see Note below).

Note: Assets transferred on or after 25 May 1994 are likely to be within the legislation at Sections 696 to 702 ITEPA 2003. The provider must subject tradeable assets or readily convertible assets (RCAs) to PAYE. See EIM03604 and in particular EIM11800 onwards. This does not apply in this example because a car is not usually a RCA unless there is a pre-arranged buy-back or purchase at a protected price by a third party.