The Post Office could be facing a £100 million bill and insolvency after claiming tax relief for its compensation payments to subpostmasters, according to a tax expert.

Dan Neidle, the head of non-profit organisation Tax Policy Associates, said the Post Office claimed £934m tax relief for its compensation payments, and suggested it could be “unlawful”.

The Horizon scandal saw more than 700 subpostmasters and subpostmistresses handed criminal convictions after faulty Fujitsu accounting software made it appear as though money was missing at their branches.

Days after the ITV drama Mr Bates vs The Post Office aired, Prime Minister Rishi Sunak announced that the wrongly prosecuted in England and Wales could have their names cleared by the end of the year under blanket legislation to be introduced within weeks.

As first reported by the Financial Times, Mr Neidle said the Post Office has treated the compensation it pays to postmasters as tax deductible, which is “not correct”, adding “you only get a tax deduction for payments made ‘wholly and exclusively’ for the purposes of the trade”.

Other tax experts told the FT it was not clear cut, with one saying a business “can generally claim tax deductions for expenses incurred that are closely connected with its trade, even if it is a compensation payment”.

The Post Office said its disclosed information on taxation was “appropriate and accurate”.

Mr Neidle posted on X saying: “The Post Office claimed £934m tax relief for its compensation payments to the postmasters it persecuted. That’s outrageous. It’s also unlawful – so the Post Office now faces an unexpected £100m tax bill. It may be insolvent.

“Our team of eminent tax and accounting experts reviewed the Post Office’s accounts for the last ten years in detail and one issue stood out: it has treated the compensation it pays to postmasters as tax deductible. That is not correct.

“A source at the Post Office has confirmed to us that HMRC is investigating this and asserting that the Post Office owes tax – in our view they are right to do so.”

Chair of the Commons Business and Trade Committee Liam Byrne said it was “another shocking story” about the state-owned company.

The Labour MP told BBC Radio 4’s Today programme: “It looks like we’ve almost got the Post Office double-crossing the country again by underpaying their taxes and overpaying their bosses.

“It looks like what they’ve basically done is crystalised the losses for the sins of the past, set that against current accounts, but they’ve wanted to avoid the hit to the bonuses of the current management team. And I’m not sure you can have it both ways.”

He said the committee will ask questions about the tax relief on Tuesday when they quiz Post Office chief executive Nick Read and Fujitsu’s head of Europe Paul Patterson.

HMRC would not confirm or deny investigations and said it would not comment on identifiable taxpayers.

A Post Office spokesperson said: “The disclosed information on taxation in Post Office’s Annual Report and Accounts for 2022/23, published on 20 December 2023, is appropriate and accurate.

“We have regular conversations with Government who are our sole shareholder and our correspondence in respect of this issue was about ensuring that the tax treatment of funding we receive from Government to pay compensation was treated in the same way as other Government funding that we receive.”

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Post Office could face £100m bill and insolvency, tax expert says