UK’s Post Office faces scrutiny over tax payments 

According to tax specialists, the Post Office may have underpaid around £100m in tax while overpaying its senior executives.

The Post Office is under scrutiny for allegedly paying less tax by deducting payments to victims of the Horizon scandal from its profits. 

Tax experts, including Dan Neidle of Tax Policy Associates, suggest that this practice could potentially breach tax laws. The Post Office has been compensating sub-postmasters who had their theft convictions overturned in the Horizon IT scandal.

 If the Post Office is required to repay the alleged shortfall to HMRC, it could face technical insolvency, prompting government intervention to support it. Experts note that costs related to fines or penalties are typically not tax-deductible.

Alleged Breach of Tax Law

Dan Neidle of Tax Policy Associates highlights the potential breach of tax law, stating that deducting compensation for unlawful acts is generally not permissible. 

If the Post Office deducted payments made to Horizon scandal victims from its revenue, it could result in a lower profit and, consequently, a reduced tax bill.

Impact on Post Office’s Financial Standing

Repaying the alleged shortfall to HMRC could have significant consequences for the Post Office’s financial standing. 

The government, being the owner of the Post Office, would likely need to step in to address any financial penalties or insolvency risks. However, the unique circumstance of the government fining itself raises questions about potential resolutions.

Compensation for Horizon IT Scandal

The Post Office has been compensating sub-postmasters affected by the Horizon IT scandal, where false accounting accusations led to wrongful convictions. The compensation payments are seen as redress for the harm caused to those individuals.

Post Office’s Response

The Post Office maintains that its financial information is “appropriate and accurate.” Despite the potential tax implications, the Post Office’s role as a government-owned entity may influence how financial penalties are addressed.

Expert Opinions on Tax Deductibility

Tax experts, including Heather Self from Blick Rothenberg, assert that compensation payments made by the Post Office are likely not deductible for corporation tax purposes. 

The argument is based on the challenge of justifying these payments as incurred for trading purposes and the general public policy rule that fines or fine-like payments are not tax-deductible.

The ongoing scrutiny underscores the complex financial and legal implications of the Horizon scandal fallout for the Post Office.