Sub-postmasters tax – help for those affected by the Horizon scandal
We have joined a campaign to offer sub-postmasters tax advice to those affected by the Horizon scandal. This includes those who need to file a 2022/23 tax return.
The scandal was recently brough to light again in the ITV drama ‘Mr. Bates Versus the Post Office’.
The campaign was the brainchild of Chartered Accountant, tax writer and lecturer Rebecca Benneyworth. The scheme offers practical help and advice to sub-postmasters who have received compensation and are worried about their tax position.
Benneyworth herself was affected by the depiction of the scandal in the ITV drama as well as other media coverage. She recently shared on social media her personal connection to the story. Here she explained that her mother was a sub-postmaster from 1958 to 1980.
John McCaffery, Tax Partner and Head of Tax at Alexander & Co commented “At Alexander & Co we are saddened by the stories of those affected by this scandal, which is reported as one of the biggest injustices in modern history. We wanted to assist those impacted where we can.
“Tax matters may not first come to mind with regards to the scandal. However, the compensation offered has left those affected with complex financial issues which need resolving. In fact, in certain cases, the government is charging up to 45% tax on certain compensation pay-outs.
“It is important anyone negotiating compensation payments obtains tax advice before agreeing a settlement. Depending upon the structure and terms of the compensation agreed, the compensation may be liable to tax at varying rates. Knowing in advance how the compensation will be taxed may help in the negotiating the final settlement amounts.”
The Issue
More than 900 sub-postmasters were prosecuted after faulty software (known as Horizon) incorrectly made it appear money was missing from their branches.
The Post Office had itself prosecution powers and between 1999 and 2015. During this time, it prosecuted 700 sub-postmasters (an average of one a week). A further 283 cases were brought by other bodies including the CPS.
A number of those prosecuted received prison sentences for false accounting and theft. The actions financially ruined many postmasters, despite though affected repeatedly highlighted problems with the Horizon software. It has also been reported that the actions have also been linked to at least four suicides.
After two decades, campaigners won a legal battle to have their cases reconsidered. Only 93 of the convictions have been overturned as of today. Under current government plans, those affected will be able to sign a document stating that they are innocent. This will allow them to have their convictions overturned and to be eligible for compensation.
Downing Street has commented that it will work with Northern Ireland and Scotland to ensure victims wrongly accused in these nations can be cleared.
Additionally, the Metropolitan Police is now investigating the Post Office itself over potential fraud arising from the prosecution of these wrongly convicted sub-postmasters.
Despite a public inquiry beginning in early 2021, those affected are still seeking appropriate redress and accountability.
Complex sub-postmasters tax Issues
It seems there has been inadequate consideration as to how compensation payments are structured for tax.
Certain types of compensation are paid subject to tax, adding to the issues faced by victims of this scandal. Under current schemes, the government is to take up to 45% from some of the compensation payments as tax.
It would have been simpler, and arguably fairer for the government to exempt all compensation payments relating to Horizon. This would avoid the need for complex grossing up calculations or for HMRC to get involved in unpaid tax resulting from the compensation arrangements.
HMRC guidance on sub-postmasters tax self assessments
HMRC released its own guidance on 11 January 2024, relating to sub-postmasters and their 31 January 2024 self assessment deadline.
The original compensation payments from the Horizon Scheme are subject to Income Tax and National Insurance Contributions.
HMRC has stated that postmasters in the Horizon Shortfall Scheme (HSS) will not have to pay any late filing or late payment penalty or interest where they do not receive their top-up payment in good time to file self assessment tax returns before the 31 January 2024 deadline. More information on this is available here.
Alexander & Co can be contacted at info@alexander.co.uk or by phone on 0161 832 4841 or 0207 167 7220
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as well as sub-postmasters tax advice, Alexander & Co provides a comprehensive range of both personal and corporate taxation services across the UK, covering advisory and compliance matters.
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