The issue was whether a payment to an employee in return for a restrictive covenant escaped tax. The obligations flowing from the contract of service and the remuneration to be received by the Respondent in respect of that service were entirely separate from the restrictive covenant and the consideration given for it. The sum was not paid for anything done in performing the services in respect of which the respondent was chargeable under Schedule F. ‘The consideration which he has to give under the covenant is to be given not during the period of his employment, but after its termination. He is giving to the company for a sum of pounds 7,000 the benefit of a covenant which will only come into effect when the service is concluded.’ The payment to the employee escaped tax because the payment for the covenant was quite distinct from the payment for services under his contract for service.
(1942) 25 TC 33,  AC 352
England and Wales
Cited – Commissioners of Inland Revenue v Lactagol 1954
A company, at the relevant time director controlled, made a payment to its managing director in consideration for his undertaking not to compete with the company within five years of the date when he would leave its service.
Held: The . .
Cited – Vaughan-Neil v Inland Revenue Commissioners ChD 1979
All that is required for a severance payment to be taxable is that there is a ‘connection’ between the actual, prospective or past holding of the employment and the giving of the undertaking. . .
Cited – RCI Europe Ltd v Kate Woods (HM Inspector of Taxes) ChD 16-Dec-2003
The company made payments to a former director in return for a severance agreement which restricted his future business activities.
Held: Despite the fact that all payments were made only after his employment had been terminated, they remained . .
Lists of cited by and citing cases may be incomplete.
Updated: 05 September 2021; Ref: scu.190492