Corporation Tax Act 2009 section 1234

Payments for restrictive undertakings

Section 1234 deals with how payments made by investment companies to employees for restrictive undertakings are treated for corporation tax purposes.

• A restrictive undertaking is where an employee agrees to restrict their future conduct, such as not competing with the employer or not soliciting clients, in return for a payment.
• Where such a payment is taxed as employment earnings in the hands of the employee, the company making the payment can claim a deduction.
• The section applies specifically to companies with investment business, rather than trading companies (which have a separate rule under section 69).
• The payment is treated as expenses of management, which is the mechanism by which investment companies deduct allowable costs for corporation tax purposes.