PAYE operation: payments for PAYE purposes: restrictive covenants
An employee may receive a payment for agreeing to restrict future conduct or activities. For example, an employee might agree that if she leaves her current employment she will not work within a fifty mile radius for a competitor, or for herself, for five years.
Such an agreement is called a restrictive covenant. If the covenant was entered into after 9 June 1988, any payments made under its terms are chargeable to tax.
There is more information on restrictive covenants and a definition of payments chargeable to tax in the Employment Income Manual at EIM03600 onwards.
Operation of PAYE on payments
Payments falling within EIM03600 onwards are treated as earnings of the office or employment that the covenant relates to. The employer should operate PAYE as normal on any such payments.
Payments in kind
In the unlikely event of a payment in kind being made, refer for advice to Personal Tax Customer, Product & Process, PAYE Technical, Shipley.