Does Horizon compensation get taxed?

[TrueBlueTerrier]

https://www.conveniencestore.co.uk/dear ... 37.article

Dilbag Sandhu’s post office in Glasgow was one of the far-too-many outlets to fall afoul of Horizon, the PO’s glitch-ridden accounting system. But unlike others Dilbag didn’t get the sack or wrongly prosecuted or a prison sentence. The PO just docked his so-called shortages over the course of nine years.

Once Horizon was exposed in the court, Dilbag applied for compensation. The Post Office came up with a figure of £53,031.61 (shortfall losses £30,075.02; distress and inconvenience £5K plus compensatory interest in relation to shortfall losses £17,956.59). Dilbag believes the figure is too low but he accepted the offer because he only kept the paperwork for six years.

But he queried the income tax on the compensatory interest of £3,591.32 which they docked from their offer and paid to HMRC on his behalf.

It turned out to be correct. I had queried HMRC on a similar case last year. HMRC said:

* Historical Shortfall Scheme (HSS) compensation payments are taxable depending on what they are for/what they replace. Different elements of a compensation payment may therefore be treated differently for tax.

* No tax is due on parts of the compensation specifically for the shortfalls that were repaid.

* Compensation for loss of earnings are paid as gross pay, this is taxable just like earnings.

Dilbag also spoke to the tax office and was told he didn’t need to declare any of it except for the interest and the tax on it.

And unlike the case I reported on last year, the compensation will not put Dilbag into a higher tax bracket.