Policy paper

The Horizon Convictions Redress Scheme and Horizon Shortfall Scheme Fixed Sum Award — tax treatment

Published 26 July 2024

Who is likely to be affected

Postmasters entitled to, or in receipt of compensation payments from the Horizon Convictions Redress Scheme and Horizon Shortfall Scheme Fixed Sum Award (HSS Fixed Sum Award).

General description of the measure

The measure exempts payments made under the Horizon Convictions Redress Scheme and HSS Fixed Sum Award from Income Tax, National Insurance contributions and Capital Gains Tax. It also relieves these payments from Inheritance Tax. HSS Fixed Sum Award payments are also exempt from Corporation Tax.

The Horizon Convictions Redress Scheme compensates postmasters who were convicted as a result of the Horizon scandal and have had their convictions quashed in legislation, by the Post Office (Horizon System) Offences Act 2024.

The HSS Fixed Sum Award ensures postmasters who are members of the original Horizon Shortfall Scheme receive a fixed payment of £75,000 in total compensation. Where postmasters have already received payments in the Horizon Shortfall Scheme, the HSS Fixed Sum Award will ensure they receive a supplementary payment to ensure they receive at least £75,000 as their total compensation package.

Policy objective

The policy objective to this measure is to ensure compensation payments made to postmasters in the Horizon Conviction Redress Scheme and HSS Fixed Sum Award are exempt from Income Tax, National Insurance contributions, Capital Gains Tax and relieved from Inheritance Tax. HSS Fixed Sum Award payments are also exempted from Corporation Tax.

It has been government policy to exempt certain compensation payments that have arisen as a result of the Horizon IT scandal or related court judgements, in line with the principles that underpin the tax treatment of compensation payments.

In keeping with this policy, the government has decided to exempt the Horizon Convictions Redress Scheme and HSS Fixed Sum Award from Income Tax, National Insurance contributions, Capital Gains Tax, Corporation Tax (for HSS Fixed Sum Award only) and to relieve them from Inheritance Tax.

This avoids any administrative burden on the recipients as they will not have to report receipt of these payments to HMRC, and it adheres to the principles and precedents of similar Post Office Limited compensation schemes (such as the Overturned Convictions — formerly the Overturned Horizon Convictions, Group Litigation Order, Suspension Remuneration Review and Post Office Process Review).

This will be achieved by two statutory instruments, one of which will exempt the payments from Income Tax, Capital Gains Tax, Corporation Tax and relieve them from Inheritance Tax, and the other from Class 1 National Insurance contributions.

Background to the measure

Post Office Limited established the Overturned Convictions workstream and the Horizon Shortfall Scheme (of which HSS Fixed Sum Award form a part) to provide compensation to the victims of the Horizon scandal, where accounting software errors resulted in the Post Office incorrectly taking punitive action against postmasters, in some cases resulting in criminal convictions. The Department for Business and Trade will deliver the Horizon Convictions Redress Scheme for those whose convictions are quashed by the Post Office (Horizon System) Offences Act 2024.

The measure was announced in a Written Ministerial Statement on 13 March 2024, announcing the tax treatment of payments made via the Horizon Convictions Redress Scheme and HSS Fixed Sum Award. These payments would be exempt from Income Tax, National Insurance contributions, Capital Gains Tax, Corporation Tax (HSS Fixed Sum Award only) and relieved from Inheritance Tax.

Detailed proposal

Operative date

The measure will have effect on 16 August 2024, with retrospective effect from 13 March 2024 for the exemptions from Income Tax, Capital Gains Tax, Corporation Tax and relief from Inheritance Tax. The Commissioners have agreed to use their Collection and Management powers to not collect Class 1 National Insurance contributions on payments made before 16 August 2024.

Current law

The law relating to tax exemptions and reliefs is in Parts 1 and 2 of Schedule 15 to the Finance Act 2020.

The law relating to Class 1 National Insurance contributions is in:

• sections 3(2) and (3) of the Social Security Contributions and Benefits Act 1992
• sections 3(2) and (3) of the Social Security Contributions and Benefits (Northern Ireland) Act 1992
• part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (payments to be disregarded in the calculation of earnings-related contributions)

Proposed revisions

There are no proposed changes to primary legislation and this measure simply exempts compensation payments from Income Tax, Capital Gains Tax, Corporation Tax (for HSS Fixed Sum Award payments) and provides relief from Inheritance Tax, enabled by paragraph 2(5) of Part 1 and paragraph 7(1)(e) of Part 2 of Schedule 15 to the Finance Act 2020.

Part 10 of Schedule 3 to the Social Security (Contributions) Regulations 2001 is amended by the insertion of a new paragraph after paragraph 30 to disregard the payments from Class 1 National Insurance contributions.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
Empty	Empty	Empty	Empty	Empty	Empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility, and will be set out at the next fiscal event.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measures will impact individuals receiving compensation by exempting payments made by Post Office Limited and the Department for Business and Trade from tax and National Insurance contributions. Individuals will not need to do anything differently as the exemption will be automatically applied to those payments.

The measure is not expected to impact on family formation, stability or breakdown.

These customers will not need to engage with HMRC to declare their compensation payments, reducing the administrative burden on individuals. For individuals receiving compensation payments, this measure is expected to have no impact on the individual’s experience of dealing with HMRC as it does not change any processes or tax administration obligations.

Equalities impacts

It Is not anticipated that there will be negative impacts on those in groups sharing protected characteristics.

Impact on business including civil society organisations

There is no impact on business as these measures only affect individuals.

Operational impact (£ million) (HMRC or other)

There are no operational impacts on HMRC. Post Office Limited and the Department for Business and Trade are expected to manage the administration of the schemes with existing staff resources.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

None of the formal evaluation principles apply.

Further advice

If you have any questions about this change, please contact Amir Miah or the Income Tax Policy team by emailing amir.miah@hmrc.gov.uk.

Declaration

James Murray MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.