Post Office may have to pay more than £100m in tax as experts warn it may have underpaid while deducting payments to victims of the Horizon scandal

Some 4,000 people affected by the scandal could be eligible for compensation  

The Post Office may have to pay £100million in extra tax if found to have deducted payments to Horizon scandal victims from its profits, finance experts have warned.

Dan Neidle of Tax Policy Associates said such a move could equate to a serious breach of tax law.

‘The non-deductibility of compensation for unlawful acts is a well-known point,’ he told the BBC.

Businesses pay a rate of tax based on their profits, which can be brought down by claiming tax deductions for some legitimate business expenses.

Costs accrued as a result of fines and penalties usually do not qualify for these exemptions.

If required to pay HMRC an additional £100million, the Post Office – which is owned by the government – could be rendered technically insolvent.

HMRC is understood to be currently investigating how the Post Office has accounted for the hefty compensation fees it is due to pay out, according to the BBC.

The Post Office has said its financial information was ‘appropriate and accurate’.

Some 4,000 people in the United Kingdom have been told they are eligible for compensation, and new potential victims are still coming forward.

Under the Group Litigation Order scheme, the victims can expect to receive ‘at least £75,000 in compensation upfront’, though it is expected many will ask for more.

Dan Neidle (pictured) said the Post Office paid less tax by subtracting compensation payments

File photo. 4,000 people may be eligible for compensation payments from the Post Office

Heather Self, a consultant on corporate tax at Blick Rothenberg, told the BBC ‘the payments of compensation… are almost certainly not deductible for corporation tax purposes, in my view.

‘Not only is it difficult to argue that they were incurred for trading purposes, there is also a general rule of public policy that fines – or payments in the nature of fines – are not deductible,’ she said.

As many as 983 people have been handed convictions related to the Horizon IT programme, 700 of which were privately pursued by the Post Office.

Ninety-three of those people had had their convictions overturned as of December 1, 2023, amid deeper investigations into their cases and the faulty Horizon software.

Those whose convictions are overturned can choose between a £600,000 settlement in compensation and entering in negotiations to ask for more.

All are entitled to an interim payment of £163,000 while talks are ongoing.

But for many, no amount of compensation will repair the damage done by the scandal.

Between 1999 and 2015, hundreds were accused of crimes they did not commit when the Post Office’s accounting software, Horizon, reported shortfalls in cash collected at various branches.

The impact of court cases, convictions, loss of work, debt and tarring of reputation saw lives irrevocably changed as innocent people were publicly charged with theft and fraud.

In at least four cases, victims of the scandal took their own lives.

Problems with the software were reported as early as 2009, but it would be another decade before the High Court ruled the Horizon system provided by Japanese company Fujitsu was faulty.

The Post Office then agreed to settle out of court with 555 aggrieved subpostmasters for £58million.

After legal costs, this left them with ‘only £20,000’ each, according to parliamentary documents – which estimated each sub-postmaster had accrued losses ‘well in excess’ of £100,000.

The Group Litigation Order scheme has since been set up to ensure claimants would receive extra compensation based on their individual circumstances.

HMRC is understood to be looking into how the Post Office accounted for its payments

A view of the Warrington offices of technology company Fujitsu on January 12 in Warrington

In January 2024, ITV aired Mr Bates vs the Post Office, dramatising the scandal and bringing attention back to the wrongly convicted subpostmasters.

Since then, Prime Minister Rishi Sunak has vowed to introduce new legislation for their exoneration.