Qdos: Post Office’s £104m IR35 blunder could leave thousands of contractors owed millions in tax refunds

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The UK’s government-owned Post Office faces a £104 million IR35 tax liability after wrongly classifying contract workers between 2017 and 2022 — and a controversial decision not to offset taxes already paid by contractors could mean significant refunds are owed to potentially thousands of individuals.

The very fact that the off-setting mechanism won’t be used opens the door to hundreds, potentially thousands, of contractors having grounds to submit a claim for a refund on the tax they’ve paid. The amount that could be claimed back is staggering.

— Seb Maley, CEO, Qdos

Freelance and contract workers who were engaged by the Post Office between 2017 and 2022 to support the Horizon IT remediation project could be owed significant sums in tax refunds, after the government-owned body was landed with a £104,441,881 IR35 tax liability.

The scale of the liability is so great that the Department for Business and Trade has been required to step in with a bailout, after the Post Office confirmed it is “not in a position to fund it” itself.

How did the Post Office rack up a £104m IR35 liability?
The liability arose from the Post Office’s failure to correctly determine the IR35 status of contract workers it engaged during the five-year period. Under the off-payroll working rules, introduced in the public sector in April 2017 and extended to the private sector in 2021, organisations (with the exception of small businesses) are responsible for assessing whether contractors fall inside or outside IR35. Where they get it wrong, they carry the liability.

In the Post Office’s case, it appears that workers were classified as operating outside IR35 when, in fact, HMRC has determined they should have been treated as employees for tax purposes — a misclassification that has resulted in one of the largest IR35 bills ever recorded in the public sector.

The controversial decision not to offset contractor taxes
The story does not end with the £104m figure alone, however. IR35 specialist and contractor insurer Qdos has uncovered a further and deeply contentious element: the government has opted not to apply an offsetting mechanism it introduced in 2024, which was specifically designed to prevent contractors from being taxed twice on the same income.

Ordinarily, when an IR35 liability is established, HMRC offsets taxes already paid by the contractor — comprising Corporation Tax, PAYE, and dividend tax — against the total sum owed. This prevents the same earnings from being taxed twice over.

Yet a report published on 10 March confirmed that, following discussions with HM Treasury, it was agreed the offsetting process would be dispensed with entirely, with the justification that it would “save time and resource for both [the Post Office] and HMRC,” even though according to a Qdos statement, “doing so would reduce the total liability.”

The government report stated:

The Assessment explains that POL had been working on the technical tax position for certain workers, to reduce the size of the liability but this involved the use of external tax experts.

The Assessment states that following discussion with HM Treasury, it was agreed that the off-setting calculation process 19 See Statutory Guidance paragraphs 3.75–3.112 and the SAU Guidance, paragraphs 3.14–3.18 for further detail. 12 would not be undertaken – as whilst the total sum of the IR35 tax liability would be reduced, this would save time and resource for both POL and at HMRC.

According to the report, DBT explains that this, therefore, represents the “best value for money for the taxpayer”. Furthermore, the Assessment explains that the payment is circular to the Exchequer and DBT is more comfortable funding the liability because of this (as POL would not see direct benefits, and it is cost-neutral to the Exchequer and the taxpayer).

How is the Post Office paying for the IR35 bill?
DBT is proposing to award POL, a Public Non-Financial Corporation, a grant of up to £141,841,811 to fund two activities: (a) Up to £37 million to cover the costs of acting as a core participant in the POHIT Inquiry and operating the Remediation unit which delivers compensation and other Horizon-related activities (Remediation Unit) in FY 2026/27; and (b) Up to £104,441,811 to cover POL’s historic IR355 tax liability due to misclassification of contractors engaged between 2017 and 2022.

In the Horizon Shortfall Scheme, the latest figures from 31 January 2026 show:

Of the 12,463 eligible claims, offers have been made to 10,940 people; 88% of eligible claims have received an offer.
To date, £863 million has been paid through the Horizon Shortfall Scheme. Of this, nearly £548 million was paid out in 2025 alone (over 63%).
The rate at which claims are being completed has improved, with an eightfold increase in the number of Horizon Shortfall Scheme claims resolved in 2025 compared with 2024.
What this means for affected contractors
The ramifications for the contract workers involved could be substantial. Because the offsetting mechanism will not be applied, affected contractors may have grounds to submit a claim directly to HMRC for a refund of the taxes they paid whilst working outside IR35 during their Post Office engagement.

Under HMRC’s own rules, the tax authority should have written to these individuals notifying them of the potential to reclaim, according to Qdos. Claims must be submitted within four years of the end of the relevant tax year, meaning time may be running out for workers whose engagements date to the earlier part of the 2017–2022 window.

Qdos CEO Seb Maley warned that, whilst a portion of the potential refunds may already fall outside the four-year window, the sums still potentially in play are enormous. Rough calculations by the firm suggest the offset amount — and therefore the aggregate refund figure — could reach in the region of £50 million.

While it may be faster and easier not to offset the tax already paid, the government introduced this change last year to avoid these exact situations — where tax is effectively collected twice and huge numbers of contractors are owed significant tax refunds.

— Seb Maley, CEO, Qdos

Fresh questions over HMRC’s handling of public sector IR35 non-compliance
The revelations raise wider questions about how the hundreds of millions in tax collected as a result of IR35 non-compliance across the public sector has been accounted for and reported upon by HMRC. Maley argued the Post Office case brings renewed scrutiny to longstanding failings in the organisation’s administration of the off-payroll rules.

Speaking on the broader implications, Maley said:

You also have to ask how this will be reported on from a tax take perspective. This raises fresh questions around how HMRC has collected the hundreds of millions in tax resulting from non-compliance across the public sector, while also shining the light once more on failings at the Post Office.

What should affected contractors do now?
Contractors who worked for the Post Office between 2017 and 2022 and believe they were engaged outside IR35 during that period are advised to seek specialist tax advice as a matter of urgency, given the approaching time limits on reclaiming overpaid tax. An IR35 expert will be able to assess whether a valid claim exists and guide individuals through the process of submitting a refund request to HMRC.

The Post Office IR35 scandal adds yet another chapter to the troubled history of the organisation, and is likely to prompt fresh calls for greater transparency around how public sector bodies administer and enforce the off-payroll working rules.

DISCLAIMER

This article is for informational purposes only and does not constitute legal or tax advice.