Sending help to sub-postmasters

When one concerned accountant issued a call for fellow professionals to come to the aid of sub-postmasters, the response was overwhelming.

Accountants are quietly stepping up to help the victims of what many now view as the biggest miscarriage of justice in UK legal history. Rebecca Benneyworth, Chartered Accountant, set up a website where accountants could volunteer their services to victims of the Post Office/Horizon scandal dealing with lump sums of compensation liable for taxation.

As the daughter of a sub-postmistress in rural Gloucestershire who learned balancing the books by working at her mum’s side in the post office, it’s not surprising that Benneyworth followed the Post Office IT scandal as it surfaced in the news over the course of a decade. But when the ITV drama Mr Bates vs the Post Office blew the lid off the scandal in the New Year, the wider UK public began to understand its scale.

“People have said, ‘why hasn’t it been in the press?’ It actually has been in the press, but it just hasn’t had the traction. This brilliant drama means suddenly everybody knows about it, and they are absolutely fuming.” But although she had a passing knowledge of the scandal of subpostmasters being falsely accused of fraud and theft due to a massive IT failing in Post Office systems, Benneyworth, who now owns and runs her own tax practice, was unaware of what she calls ‘the scandal within a scandal’.  

Taxing times for payout recipients

Alerted by a blog post from former tax lawyer and now tax reform advocate Dan Neidle in December, Benneyworth discovered the mess that those running the original compensation scheme had made around the taxation of the payouts. Responding to the publicity around the case in early 2023, the Post Office admitted that they had erroneously handled the taxation of payouts, and they would start making additional payments to postmasters of purely a tax-free amount to cover the anticipated tax liabilities.

“As an accountant dealing with tax returns, I was horrified because these poor people were facing having to do tax returns and pay their tax without the money,” Benneyworth says. “So that’s when I set up the website thinking what we can do is at least help them complete their tax returns. I was absolutely deluged with accountants volunteering to help.”

Since the turn of the year Benneyworth has worked to connect those in need of help with suitably qualified accountants, all of whom are offering their services gratis. She’s also produced a fact sheet for volunteers explaining the intricacies of the payment, how the tax works on it and how to make the tax return. In response, HMRC has announced it would not raise penalties on those affected if they hadn’t done it because they hadn’t had their tax top-up payment.

Post Office’s miscalculations

Niedle’s post highlighted the tax implications in relation to compensation and lump sums and exposed both the complexity – and simplicity – of the taxation error. “Compensation can be viewed in a number of ways from the tax standpoint,” Benneyworth explains. “So it does depend on what we’re talking about, but a big part of some post-masters’ settlements under [the original compensation scheme] HSS came in the form of compensation for being sacked incorrectly.

“In those cases, victims receive the first £30,000 tax-free, and the remainder is subject to PAYE, even though you’re not working for the Post Office anymore to have PAYE deducted on it. So, if the compensation scheme is structured properly, the compensation payment would be calculated based on net pay, leaving no tax implications.”

However, the Post Office didn’t follow that guidance, and instead based their calculations on gross pay, making it all subject to PAYE. “So, if you imagine that you’re a postmaster earning, let’s say, £20,000 a year, and you receive 20 years’ compensation for loss of office, that’s £240,000, most of that would be taxed at 45%; whereas if you turned it year by year by year you would only have borne basic rate on it,” says Benneyworth, who explains that victims also incurred a tax liability on the interest on that compensation as well as on what’s called their shortfall payment – the money that they provably put in to balance the books.

“Unfortunately, when you read in a bit more detail about it, what you find is that most of it they can’t prove what they put in,” says Benneyworth. “And so you’ll see quotes from postmasters saying, I haven’t even got back half of the money I put in. But that’s because the Post Office is asking for documentary proof, much of which is lost in the mists of time.”

The cavalry arrives

It’s no wonder that the offer of help from qualified accountants has been so warmly welcomed by the victims of the scandal, given they have been affected by a number of large bureaucratic machines. And, despite the sense of frustration over the general performance of those responsible, Benneyworth singles out one as having stepped up to the plate.

“HMRC has been absolutely brilliant. I’ve spoken with its team and shared my information sheet with them so they can see what we’re doing.” The Revenue moved quickly, opening up a phone line staffed with properly trained advisers keen to help those affected.

And, while Benneyworth is pleased to see the wheels grinding towards a satisfactory conclusion (albeit slowly), it could have been so different: “If you gave me a couple of bookkeepers I could have worked out these tax compensation payments in about a week,” she laments.

Ultimately she is one of many hoping that the suffering endured by those affected might end up forcing changes when similar scandals emerge, and that lessons are learned. “The most important thing is that compensation should be taken out of the hands of the perpetrators – that’s absolutely essential. That means getting the right people to scrutinize it and focus on the needs of the people who’ve already been through enough.”

Christian Doherty is a business journalist and freelance writer for AAT.