The Horizon Shortfall Scheme Appeals (Tax Exemptions and Relief) Regulations 2025
The Horizon Shortfall Scheme Appeals (Tax Exemptions and Relief) Regulations 2025, effective April 28, 2025, grant tax exemptions and relief to recipients of compensation payments from the Department for Business and Trade’s independent appeals process.
The regulations exempt these payments from income tax, capital gains tax, inheritance tax, and corporation tax.
Additionally, it exempts from income and capital gains tax relevant onward payments made by companies relating to these appeal payments.
All exemptions are rooted in the Finance Act 2020.
Arguments For
Intended Benefits: These regulations aim to ensure that individuals receiving compensation through the Horizon Shortfall Scheme Appeals process are not penalized with additional tax burdens. This supports the government's objective of providing fair and effective redress.
Evidence Cited: The regulations explicitly reference the Finance Act 2020, which provides the legal basis for establishing these tax exemptions.
Implementation Methods: The regulations clearly specify the effective date and scope of the tax exemptions, ensuring straightforward implementation.
Legal/historical basis: These regulations are based on powers granted by the Finance Act 2020, providing a strong legal basis for the tax exemptions and reliefs offered.
Arguments Against
Potential impacts: The tax exemptions could reduce government revenue. A comprehensive cost-benefit analysis might be necessary to evaluate the financial implications.
Implementation challenges: Ensuring accurate and consistent application of these exemptions across different tax authorities might pose challenges.
Alternative approaches: The government might consider alternative ways to provide financial support to claimants, such as direct subsidies or adjustments to existing welfare programs. The impact of these would need assessment.
Unintended effects: The tax exemptions could create an uneven playing field between recipients of Horizon Shortfall Scheme Appeals payments and those who settled claims without going through the appeals process.
- Citation and commencement These Regulations may be cited as the Horizon Shortfall Scheme Appeals (Tax Exemptions and Relief) Regulations 2025 and come into force on 28th April 2025.
These regulations are officially titled the 'Horizon Shortfall Scheme Appeals (Tax Exemptions and Relief) Regulations 2025' and took legal effect on April 28, 2025.
- Interpretation (1) In these Regulations “Horizon Shortfall Scheme Appeals” means the Scheme for an independent appeals process created by the Department for Business and Trade to assess compensation claims made under the Horizon Shortfall Scheme and make payments of compensation. (2) For the purposes of provision in these Regulations made under Part 1 of Schedule 15 to the Finance Act 2020, “Horizon Shortfall Scheme” has the same meaning as it does in Part 2 of that Schedule2.
This section defines key terms. 'Horizon Shortfall Scheme Appeals' refers to the independent appeals process set up by the Department for Business and Trade to handle compensation claims.
The definition of 'Horizon Shortfall Scheme' aligns with its definition in Part 2 of Schedule 15 of the Finance Act 2020.
- Exemption from income tax for Horizon Shortfall Scheme Appeals payments (1) A payment made by the Department for Business and Trade to a person under the Horizon Shortfall Scheme Appeals is a qualifying payment for the purposes of paragraph 3 of Part 1 of Schedule 15 to the Finance Act 2020. (2) This regulation has effect in relation to payments received on or after 28th April 2025.
Payments made under the Horizon Shortfall Scheme Appeals are exempt from income tax.
This exemption is based on paragraph 3 of Part 1, Schedule 15 of the Finance Act 2020.
The exemption applies to payments received on or after April 28, 2025.
- Exemption from capital gains tax for Horizon Shortfall Scheme Appeals payments (1) A payment made by the Department for Business and Trade to a person under the Horizon Shortfall Scheme Appeals is a qualifying payment for the purposes of paragraph 4 of Part 1 of Schedule 15 to the Finance Act 2020. (2) This regulation has effect in relation to disposals made on or after 28th April 2025.
Similarly, payments made under the Horizon Shortfall Scheme Appeals are exempt from capital gains tax, as per paragraph 4 of Part 1, Schedule 15 of the Finance Act 2020.
This applies to disposals made on or after April 28, 2025.
- Relief from inheritance tax for Horizon Shortfall Scheme Appeals payments (1) A payment made by the Department for Business and Trade to a person under the Horizon Shortfall Scheme Appeals is a qualifying payment for the purposes of paragraph 5 of Part 1 of Schedule 15 to the Finance Act 2020. (2) This regulation has effect in relation to deaths occurring on or after 28th April 2025.
These payments also receive relief from inheritance tax, according to paragraph 5 of Part 1, Schedule 15 of the Finance Act 2020.
This relief applies to deaths occurring on or after April 28, 2025.
- Exemption from Corporation Tax for Horizon Shortfall Scheme Appeals payments (1) A payment made by the Department for Business and Trade to a person under the Horizon Shortfall Scheme Appeals is a relevant compensation payment for the purposes of Part 2 of Schedule 15 to the Finance Act 2020. (2) This regulation has effect in relation to payments received on or after 28th April 2025.
Payments received by companies are exempt from corporation tax.
The payments are considered 'relevant compensation payments' as described in Part 2 of Schedule 15 of the Finance Act 2020, and the exemption is active for payments received after April 28, 2025.
- Exemption from income tax and capital gains tax for relevant onward payments for Horizon Shortfall Scheme Appeals payments (1) Paragraph 10(3)(b) of Part 2 of Schedule 15 to the Finance Act 2020 has effect in relation to payments received on or after 28th April 2025 for payments made under the Horizon Shortfall Scheme Appeals. (2) Paragraph 10(4)(b) of Part 2 of Schedule 15 to the Finance Act 2020 has effect in relation to disposals made on or after 28th April 2025 for payments made under the Horizon Shortfall Scheme Appeals.
Relevant onward payments related to the scheme are exempt from income tax and capital gains tax, following paragraphs 10(3)(b) and 10(4)(b) of Part 2, Schedule 15 of the Finance Act 2020.
This applies to payments received and disposals from April 28, 2025 onward.
Explanatory Note (This note is not part of the Regulations) These Regulations provide for exemptions from capital gains tax, corporation tax, income tax and a relief from inheritance tax for payments received under Horizon Shortfall Scheme Appeals, an independent appeals process created by the Department for Business and Trade. Relevant onward payments made by companies will be exempt from income tax and capital gains tax. Horizon Shortfall Scheme Appeals payments are payments made by the Department for Business and Trade to persons who appeal their compensation claim offers made under the Horizon Shortfall Scheme. A Tax Information and Impact Note covering this instrument will be published on the website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
The explanatory note summarizes the regulations' purpose: to provide tax exemptions and relief for payments from the Horizon Shortfall Scheme Appeals.
It clarifies which taxes are impacted and mentions the availability of a Tax Information and Impact Note online. The note reiterates the source of payments, from the Department for Business and Trade, and which individuals are eligible (those using the appeals process of the compensation scheme).
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