For over twenty years more than 700 sub-postmasters were wrongly prosecuted for fraud by the Post Office. In January 2024 the Government announced a 'mass exoneration' to clear their criminal convictions and agreeing to make an upfront payment of £75,000 in extra compensation.

We review the different forms of compensation paid and payable to the postmasters varies in its tax treatment.

'Reasonable excuse' may well be claimed as an excuse for late filing and payment of tax under Self Assessment in these cases.


  • Postmasters were forced to make good 'losses' that were not real but created by the faulty Horizon computer accounting system. 
  • The Fujitsu-supplied Horizon software lacked the failsafe control of a basic double-entry bookkeeping system.
  • As a result of coding glitches it generated its own fictional balancing figures and it also allowed the postmaster's accounts to be manually adjusted by both the Post Office and Fujitsu.
  • Only the Post Office and Fujitsu know the true extent of the glitches or bugs in the Horizon system.
  • The errors were effective in generating extra cash receipts for the Post Office.
  • It remains unclear whether the Post Office simply pocketed this extra cash or, whether it was creamed off by a fraudster working within either company.

Tax treatment

The tax treatment of the compensation payments received and receivable by postmasters has varied.

Compensation scheme

Paid by

Tax payable?

Upfront payment of £75,000 (announced January 2023)

Payable to those who were part of the group litigation order against
the Post Office

Taxpayers Tax-free

Top-ups to the HSS



Horizon Shortfall Scheme (HSS)
compensation for loss of earnings

Post Office

Income Tax & NICs (taxed as lost earnings) or Corporation Tax if claimant was a company

Able to claim up to £300 to cover the cost
of receiving help with filing their tax returns.

Post Office Group Litigation Order compensation payment



Overturned Historical Conviction compensation payment

Post Office


Self Assessment: late filing or payment delays

Postmasters who have not received a top-up payment under the HSS and tax advice grant from the Post Office in time to file their return and pay their tax by 31 January 2024 will be able to claim that they have a reasonable excuse if they are charged Tax Penalties for late filing or payment of their tax.

HMRC has a dedicated support team who can advise further on the tax status of compensation payments.

What are tax issues with the taxable compensation schemes?

The Horizon Shortfall Scheme was put in place by Post Office Ltd to compensate postmasters who, while not subject to criminal conviction, made good the apparent losses caused by the Horizon system from their own pockets. This original HSS compensation payments are subject to Income Tax and National Insurance Contributions (NICs). 

  • Postmasters who receive compensation under the HSS may therefore have to file a Self Assessment tax return and pay Income Tax and NICs on these payments.  
  • Postmasters in the HSS will also receive £300 to pay for independent advice on filing their tax return. 

Payments in the Overturned Conviction (formerly known as the Overturned Historical Conviction scheme) and Group Litigation Order schemes and Top Up schemes are made exempt of Income Tax and NICs and recipients do not have to pay any tax on these payments or report them to HMRC.  

See Post Office Horizon Compensation for further details.


Why didn't the postmasters' accountants spot the issue?

Most postmasters ran shops on a self-employed basis alongside their postal business, but they were also employees of the Post Office. Whilst most retained their own detailed handwritten ledgers which showed no discrepancies, the Post Office system was used for reconciling their stock of stamps etc, payments made to pensions and savings etc. The postmaster had no control over the output of the Horizon system. It was Post Office property and it did not form part of their records as self-employed traders. When challenged by postmasters who claimed that the system was inventing figures, the Post Office continued to claim that its Horizon system was infallible when it was not.

Many postmasters will have had their own accountants acting for them dealing with the accounts of their shop business. The way that postmasters dealt with their fictional losses seems varied. In some cases the losses were adjusted through their retail business accounts: the assumption of the innocent victim being that the cash must have been diverted in that direction due to some kind of bookkeeping error. The postmasters' own accountants had no access to the Horizon system and like the postmasters themselves were forced to accept that it was correct. 

There is some evidence that some postmasters were far too ashamed of being accused of fraud to enable them to act rationally and seek help and share details of the allegation with family, friends or advisers. In some cases, postmasters simply paid the Post Office the shortfall and tried to forget about it, instead blaming it on adverse business conditions in their other business and did not mention the real issue to anyone else. There is a question mark as to whether this group of postmasters who are the silent victims in this accounting scandel will ever be compensated for their losses and trauma of a false fraud accusation.

Why did not the Post Office's external auditors report anything?

  • Who knows: it is difficult to speculate without hearing their evidence.
  • There was evidently the presumption made by the Post Office that postmasters were all 'on the fiddle'. Whether that fed into their auditors remains to be seen
  • We expect to hear more during the on-going public enquiry

Useful guides on thjis topic

Post Office Horizon Compensation & Tax
As part of the fallout of the Post Office Horizon scandal, many sub-postmasters and sub-postmistresses are receiving compensation. How are these receipts taxed?

Self Assessment (SA) tax penalties
What penalties are due for outstanding tax returns? What penalties are due for late payment? Are there special rules for delays affecting victims of the Post Office Horizon scandal and due to COVID-19? 

External links

HMRC: Help with late filing if you are a sub-postmaster

Government compensation schemes: PAC Chair requests National Audit Office review