The Post Office compensation schemes — postmaster exemptions
Published 13 May 2024
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Who is likely to be affected
Postmasters entitled to, or in receipt of compensation payments from the Post Office Process Review (PPR) scheme, the Suspension Remuneration Review (SRR) scheme and the Group Litigation Order (GLO) scheme.
General description of the measure
The measure provides an exemption from Income Tax, National Insurance contributions and Capital Gains Tax (CGT) on compensation payments from the PPR and SRR compensation schemes.
Previous measures laid in 2023 exempted GLO compensation payments from Income Tax, National Insurance contributions, CGT and provided relief from Inheritance Tax (IHT).
This measure confirms the tax and National Insurance contributions treatment, ensuring that payments made to a subset of claimants in the GLO compensation scheme are also exempt from Income Tax, National Insurance contributions, CGT and IHT.
The measure aligns with the tax treatment of the payments from the Overturned Convictions (OC) — formerly known as the Overturned Historical Convictions scheme and the GLO scheme, which were exempted by Statutory Instrument 2023/184, the Post Office Horizon Compensation and Infected Blood Interim Compensation Payments Schemes (Tax Exemptions and Relief) Regulations 2023, Statutory Instrument 2023/186 and the Social Security (Contributions) (Amendment) Regulations 2023.
The PPR scheme compensates postmasters who have been impacted financially as a result of previous operational issues unrelated to Horizon shortfalls, such as processes or policies connected with certain Post Office Limited services.
The SRR scheme, including top up payments, compensates postmasters who did not receive the suspension pay they were entitled to.
The GLO scheme is an ex-gratia scheme set up and run by the Department for Business and Trade. This measure will also exempt a small subset of compensation payments in the GLO scheme. The GLO compensates those who were successful in litigation against Post Office Limited, but whose damages were subsequently reduced by legal fees. GLO payments to nominated individuals relate to entities that would be eligible to receive compensation under the GLO scheme, but have been dissolved. The measure exempts payments to a nominated individual (a shareholder or director of a company or partner in a partnership), who will receive the GLO compensation directly.
For a small number of individuals who have already received compensation payments through the SRR scheme, Post Office Limited will make top-up payments, which this measure will exempt.
Policy objective
The policy objective to this measure is to ensure compensation payments made to postmasters in the PPR and SRR schemes are exempt from Income Tax, National Insurance contributions and CGT, and ensure compensation payments made to nominated individuals in the GLO scheme are exempt from Income Tax, National Insurance contributions and IHT.
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 SRR and PPR from Income Tax, National Insurance contributions and CGT, and GLO payments made to nominated individuals from Income Tax, National Insurance contributions, CGT and IHT. 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. This will be achieved by two statutory instruments, one of which will exempt the payments from Income Tax, CGT and IHT, and the other from National Insurance contributions.
Background to the measure
Post Office Limited established the Overturned Convictions workstream and the Horizon Shortfall Scheme to provide compensation to the victims of the Horizon scandal, where accounting software errors resulted in the Post Office incorrectly taking action against postmasters, in some cases resulting in criminal convictions. Post Office Limited are providing redress through two further schemes, which stem from the 2019 Common Issues Judgement, Bates et al. v Post Office.
The measure was announced in a Written Ministerial Statement on 8 November 2023, announcing the tax treatment of the PPR and SRR compensation schemes: that they would be exempted from Income Tax, National Insurance contributions and CGT.
Detailed proposal
Operative date
The measure will have effect on 13 March 2024.
Current law
The current law relating to tax is in paragraph 2(5) of Schedule 15 to the Finance Act 2020.
The current law relating to 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 and 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 and CGT and provides relief from IHT, enabled by Paragraph 2(5) 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 27.
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| -30 | Negligible | Nil | Nil | Nil | Nil |
These figures are set out in table 5.1 of Autumn Statement 2023 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2023.
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.
Customer experience is expected to improve for customers receiving top-up payments. These customers will not need to engage further with HMRC and declare top-up payments, as they have had to do so with their compensation payments made before the Government announcement to exempt payments, thereby reducing the administrative burden on individuals.
For individuals receiving compensation payments, this measure is expected to have no impact on individual’s experience of dealing with HMRC as it does not change any processes or tax admin 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 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 email at amir.miah@hmrc.gov.uk.
Declaration
Nigel Huddleston MP, Financial 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.