HMRC to help postmasters with tax deadline issuesby
HMRC has confirmed that it will cancel penalties and interest for sub-postmasters unable to meet their self assessment and tax payment deadlines due to late top-up payments from the Post Office.
Ten years after the Horizon scandal, which devastated the lives of more than 2,000 sub-postmasters wrongly accused of theft and false accounting, compensation payments have finally been made by the Post Office via the historical shortfall scheme (HSS).
Under the Gourley principle, compensation for loss of earnings should be structured tax-effectively so that recipients are restored to the position they would otherwise have been in. The Post Office failed to follow this principle, and instead compressed 10 years of earnings into one lump sum. As reported by Dan Neidle, founder of Tax Policy Associates, this careless approach by the Post Office had significant financial consequences by pushing many sub-postmasters into higher tax brackets. This meant that far more of the compensation payment would be lost to tax than if the earnings had been paid correctly over the 10-year period.
In June 2023 the Post Office announced that it would be making top-up payments to sub-postmasters in the HSS to reimburse the compensation unfairly lost to tax. They would also be able to claim up to £300 spent on obtaining tax advice. The government enacted that the top-up payments would be exempt from income tax, capital gains tax and national insurance.
In a ministerial statement on 19 June 2023 Kevin Hollinrake, Minister for Enterprise, Markets and Small Businesses stated: “So that payments can be made as swiftly as possible, the top-ups will be calculated so that no postmaster pays more than the basic rate of tax on the taxable elements of their compensation. This approach ensures that postmasters do not need to provide any further information.”
Not so swift
Six months later, with the 31 January self assessment and tax payment deadline fast approaching, Neidle reports that of the 1,924 HSS recipients only 831 tax top-up payment letters with individual calculations had been sent as of 20 December 2023. At a rate of 130 issued per week according to the Post Office, 1,100 postmasters will still be waiting to receive the top-up calculations and payments they desperately need to file their self assessment and meet their looming tax obligations.
Letters sent by the Post Office to affected sub-postmasters in November 2023 promised that all letters for tax top-up payments would have been sent by 31 March 2024, indirect confirmation that many will not receive the money in time to pay the tax.
Speaking to AccountingWEB, Neidle expressed his frustration: “A small team of competent accountants could have resolved the top-up payments, and provided postmasters with the help they need, in a few weeks. The Post Office has failed to do it in six months and dumped 1,100 victims of the Post Office scandal in yet another mess. Words fail me at this point.”
With the top-up payments outstanding, these postmasters now face a hefty tax bill without the means to settle it. Many of the affected postmasters are now pensioners.
HMRC provides support
To alleviate some of the inevitable anxiety, HMRC has promised not to penalise innocent sub-postmasters thrown once again into difficulty by the incompetence of the Post Office. In a statement to AccountingWEB the tax authority confirmed that it will cancel penalties and interest for sub-postmasters who, due to a late top-up payment, do not file their self assessment return and/or do not pay their tax on time.
HMRC has also set up a dedicated team to provide sub-postmasters with tax information required for their compensation claims.
An HMRC spokesperson said: “Postmasters who struggle to meet the deadline for paying their tax because of a late top-up payment will be able to have any penalties and interest associated with this cancelled. We will be publishing guidance soon.”
In praise of the tax authority for its swift action in offering support, Rebecca Benneyworth, tax lecturer and writer said: “It’s great to see HMRC stepping up to help sub-postmasters who have been so badly treated and have suffered so much through this scandal. Well done HMRC.”
Concerned HSS recipients are advised to seek expert advice if they have the means. Those who do not, and there will be many, should hold off paying the tax due on their compensation payments until they have received the top-up payment and details of how to claim the £300 for independent advice. Information about how affected parties might be eligible to access free advice will be available in the coming weeks.
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Consulting Tax Editor for AccountingWEB.
I have spent the last 10 years teaching the accountants of the future, mainly ICAEW advanced level corporate reporting. I also cover tax news and write and edit tax updates for other publishers including PTP Limited.