The Post Office is facing allegations that the company may have underpaid more than £100m in tax while overpaying its senior executives. Tax experts have suggested that the firm paid less tax by deducting payments to victims of the Horizon scandal from its profits in a possible breach of tax law. The Post Office has been paying out to sub-postmasters who have had their theft convictions quashed. Repaying the alleged shortfall to HMRC could render the Post Office technically insolvent, and the government would need to provide financial support.
Corporation tax is paid to the government by companies located in the UK and foreign companies with UK offices. It is charged on their profits, which is the amount of money they make minus their costs such as staff and raw materials. While corporations can claim corporate tax deductions for legitimate business expenses, costs related to penalties or fines are not usually tax deductible.
Heather Self from accounting and advisory firm Blick Rothenberg stated that the compensation payments made by the Post Office are unlikely to be deductible for corporation tax purposes. It is difficult to argue that the payments were incurred for trading purposes, and there is also a general rule of public policy that fines or payments in the nature of fines are not deductible.
Mr Neidle estimates that deducting postmaster compensation from the Post Office’s trading profit would mean that it underpaid more than £100m in corporation tax. While the Post Office appears to have deducted compensation provisions from their taxable profits, it appears to have ignored them when calculating executive pay. The largest determinant of bosses’ pay is a measure called “trading profit” that excludes the money set aside to compensate scandal victims, thereby increasing the pay of executives. Chief executive Nick Read received a salary of £436,000 in the year ended 2022 plus a £137,000 bonus, with Post Office recording an above-target trading profit if compensation provisions were ignored
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