Wrongful Prosecution of Many Postmasters

The wrongful prosecution of many postmasters has eventually been recognised and a system for compensation payments put in place. Some have settled and some are yet to settle.

Interim payments of £100,000 were made in July 2021 and the limit was later uplifted to £163,000. The Post Office has made interim payments to 100% of eligible postmasters who have submitted a claim. The Government has now announced that every postmaster who was wrongfully convicted and had their conviction overturned will be offered an optional sum of up to £600,000 in compensation.

All reasonable legal fees will continue to be covered and any postmaster who does not want to accept this offer can continue with the existing process. For those postmasters who have already received initial compensation payments or have reached a settlement with the Post Office of less than the £600,000, they will be paid the difference.

However, the taxation of such payments has continued to cause difficulty.

555 Group Litigation (GLO) claimants reached a jointly agreed settlement with the Post Office in December 2019. This included a £57.75 million global payment as full and final redress. There were 62 claimants with criminal convictions. The terms of the settlement allow those claimants to pursue further certain specified claims arising out of their prosecutions if and when their individual convictions are overturned.

The Horizon (originally Historical) Shortfall Scheme (HSS) was launched to independently assess applications from current and former Postmasters who believed they may have experienced shortfalls related to previous versions of the Horizon system.

HSS offers were made on a gross basis and but the compensation was then taxed. This allowed claims to be processed more efficiently without the need for postmasters to provide tax information. However, this approach did not account for the tax on compensation when paid as a lump sum, which meant that postmasters are not necessarily restored to the position they would otherwise have been in.

The Government has now announced that top-up payments will be made to rectify this and the top-up payments will not be taxable. In addition, claimants can claim for up to £300 costs incurred for tax advice to be reimbursed by the Post Office.

The Government had already announced its decision that payments made under the GLO scheme and payments made to postmasters with overturned convictions would not be liable to income tax.

So the position is as follows.

The Post Office Historical Shortfall Scheme

The element which relates to compensation for loss of earnings is subject to PAYE. In addition, the part which relates to interest suffers 20% tax at source (any further tax would need to be paid via self assessment). Top-up payments to rectify the tax on the compensation will be exempt from income tax, CGT and NIC (SI 2023/772 and SI 2023/773).

The interest will remain taxable.

The Government has also announced that compensation are exempt from IHT (SI2023/1009).

Post Office Group Litigation Order Overturned Historical Conviction compensation payments

Exempt from income tax and CGT under SI 2023/184 and NIC SI 2023/186. Exempt from IHT under SI 2023/1009 and SI 2023/184 respectively.

Corporate recipients

Finally, draft legislation has been issued to make changes are made to Sch 15 FA 2020 (Windrush compensation not taxable) to introduce a corporation tax exemption for specified compensation payments and an income tax and CGT exemption for specific relevant onward payments of compensation to ensure that postmasters who were structured through a corporate entity, and who are either due to receive or are already in receipt of compensation payments under either the GLO or HSS, should not be subject to corporation tax.

Furthermore, relevant onward payments of the compensation to shareholders, directors or employees of that corporate entity will be exempt from income tax or CGT.