EIM03625 - 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. »Ê¹ÚÌåÓýapp 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.

Comment

»Ê¹ÚÌåÓýapp sum of £20,000 is within Section 225 ITEPA 2003 as is the value of the car by virtue of Section 226.

»Ê¹ÚÌåÓýapp 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. »Ê¹ÚÌåÓýapp 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.