Explanatory note (accessible version)
Published 18 July 2023
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Clause 1: Tax relief for compensation scheme payments
Summary
1. This clause amends Schedule 15 of Finance Act 2020 (FA 2020) to introduce a corporation tax exemption for specified compensation payments and an income tax and capital gains tax exemption for specific relevant onward payments of compensation.
2. The clause ensures that sub-postmasters who were structured through a corporate entity, and who are either due to receive or are already in receipt of compensation payments under either the Group Litigation Order scheme (GLO) or Horizon Shortfall Scheme (HSS), should not be subject to corporation tax. Furthermore, the clause exempts relevant onward payments of the compensation to shareholders, directors or employees of that corporate entity from income tax or capital gains tax.
Details of the clause
3. Clause 1 amends Schedule 15 of Finance Act 2020 to introduce tax exemptions in relation to corporation tax and other related reliefs for specified compensation payments.
Details of the Schedule
4. Part 2 makes amendments to specified compensation rule payment rules in Schedule 15 of FA 2020 to include Corporation Tax and Other Related Relief.
5. Paragraph 6 provides for the exemption of relevant compensation payments from corporation tax, income tax and capital gains tax.
6. Paragraph 7 defines “relevant compensation payment” for the purposes of this Part.
7. Paragraph 8 defines a “relevant onward payment” and provides additional requirements that must be met for compensation payments made to a company under the Horizon Shortfall Scheme in order to be considered a relevant onward payment.
8. The effect of paragraph 8 for Group Litigation Order compensation recipients is that compensation payments made to a corporate entity and then any relevant onward payment are exempt of tax. The effect for Horizon Shortfall Scheme recipients is that a relevant onward payment is only exempt to the extent the original component of compensation was exempt. However, any additional sum which is being paid to provide recompense to a potential tax liability, will be exempt.
9. Paragraph 9 sets out that no liability to corporation tax will arise in respect of the receipt of the relevant compensation payment and that no deduction should be taken in respect of making the onward payment of relevant compensation.
10. Paragraph 10 modifies existing provisions in Schedule 15 of FA 2020 to exempt potential capital gains tax charges arising on individual recipients of relevant onward payment of compensation. Timings of the receipt of compensation payments that must be satisfied to fall within this Part are set out.
11. Paragraph 11 provides definitions of the compensation schemes covered by this clause and the registered company of Post Office Ltd.
Background note
12. The clause has the effect of ensuring sub-postmasters in receipt of compensation under the Group Litigation Order or Horizon Shortfall Scheme, are not unduly penalised due to the legal form through which they chose to structure their business.
13. It seeks to ensure that there is broad parity in respect of the taxation of the ultimate recipient of the compensation payment.
14. If you have any questions about this change, or comments on the legislation, please contact the Business Profits Team (email: [email protected]).