Taxes Consolidation Act 1997 section 127

Tax treatment of restrictive covenants

Section 127 provides that payments made, or valuable consideration given, under a restrictive covenant connected with an office or employment are taxable as employment income.

• Payments under a restrictive covenant are taxed as employment income under Schedule E (or Case III of Schedule D for foreign employments), regardless of whether they are made before, during or after the employment.
• Where consideration is given in a form other than money (e.g. shares), the charge to tax applies to its market value at the time it is given.
• An employer carrying on a trade or profession may deduct the payment as a business expense for the basis period (income tax) or accounting period (corporation tax) in which it is made.
• Investment companies and assurance companies may treat such payments as deductible management expenses for the accounting period in which the payment is made.