Post Office bails out £104m to deal with historic IR35 tax breach

The Post Office Limited is to receive more than £104 million in taxpayer support after being hit with a huge debt for not following the historic off-payroll rules, known as IR35.

A newly published government document confirms that the Department of Business and Trade will provide up to £104,441,881 to cover the outstanding tax liability of HM Revenue & Customs. The funding will be paid directly to HMRC after officials have concluded that the Office is “not in a position to support itself”.

The disclosure, published on 29 January 2026, comes from a notice from the Grants Advisory Unit, which accepted a request for advice on the legality and equity of the proposed grant. This document confirms that support is related to the Post Office’s history of managing contractors under the no-pay system, as well as other legacy issues including those linked to the Horizon IT system.

The scale of the debt has increased significantly over time. In its annual report for 2023/24, the Post Office made a £72 million provision following HMRC’s review of how it classified contractors and independents. That provision rose to £101 million in its 2024/25 accounts, with the association saying it expects the issue to be resolved in the 2025/26 financial year.

The Post Office is not alone in facing huge tax bills related to IR35. In recent years, several major public sector bodies, including Defra, the Department of Justice, the Home Office and the Department for Work and Pensions, have disclosed debts linked to off-payroll non-compliance, with a combined total running in excess of £200 million.

Seb Maley, chief executive of IR35 specialist Qdos, described the Post Office bill as extraordinary. He said the figures were more often associated with football-switching than failure to comply with tax and suggested it could be the biggest IR35 bill ever handed out to a single organisation.

Maley questioned how it was possible for the division to be so widespread across all government agencies, pointing to what he described as a systemic failure to assess employment status. He said the case raised serious doubts about whether the correct IR35 assessment had been carried out and warned against over-reliance on HMRC’s Check Employment Status for Tax (CEST) tool.

While state-owned entities may end up relying on Treasury support in the event of debt, Maley warned that private companies do not have the same safety net. He said the Post Office issue should be a reminder to businesses about the financial risks associated with the unfairness of IR35.