There are currently three forms of compensation being awarded to subpostmasters following the Horizon scandal and each will have different tax implications.
Money paid to subpostmasters under the Group Litigation Order (GLO) and overturned convictions schemes is not taxable.
These payments are awarded in recognition of the unfair and unequal treatment the subpostmasters received, rather than to recompense a financial loss. They are therefore not taxable because they do not link to a taxable event.
The Historic (or Horizon) Shortfall Scheme (HSS) compensation scheme is made up of three elements.
• Returning subpostmasters’ own money to them to the extent that they can prove they used it to meet alleged shortfalls in their takings: this is not taxable but it is repaid with interest on which tax is payable.
• Damages for personal loss: this is not taxable as there is no taxable event and there is no interest added.
• Compensation for loss of office, on which interest is applied: this is taxable because had the subpostmasters been paid correctly in the relevant years they would have been taxed on that income.
The compensation for loss of office should have been paid to the subpostmasters net of basic rate tax which the Post Office should have deducted at source. As payments were made gross and in one lump sum, several subpostmasters will be pushed into higher tax brackets up to 45% (or now up to 48% for Scottish taxpayers). In recognition of this the Government offered top up payments to affected subpostmasters to help them pay the excess tax due. The top up payment is not taxable.
If you have received or been offered compensation payments as a result of the Horizon scandal, it is important to understand the tax implications and the amounts that may need to be included on your self assessment tax return. We can help you with this.
