HMRC targets errors in marginal relief claims
HMRC has begun a letter campaign aimed at businesses that may have made mistakes when calculating corporation tax marginal relief. If you receive one of these letters, it’s important to act quickly: you must reply within 30 days, even if you believe your return is correct. Ignoring it could trigger a compliance check and potentially lead to penalties.
What’s the issue?
The focus is on companies with associated companies — that is, businesses that share ownership or control links. Having associated companies reduces the thresholds for marginal relief, meaning some businesses may have underpaid corporation tax without realising it.
HMRC’s wording is direct: “We have information that shows your company has associated companies, but hasn’t declared them when claiming marginal relief. Having associated companies reduces the taxable profit limits for claiming marginal relief. This means your company may owe more corporation tax.”
A quick reminder on marginal relief
Since April 2023:
- Profits above £250,000 are taxed at 25%.
- Profits below £50,000 are taxed at 19%.
- Anything in between benefits from marginal relief, which smooths the jump between the two rates.
Where associated companies exist, those thresholds (£50,000 and £250,000) must be divided proportionately, which reduces the scope for relief.
What to do if you’re affected
- Review your corporation tax returns for periods from April 2023 onwards.
- If an error is within 12 months of filing, you can amend your return online.
- If it’s outside that window, HMRC recommends making a voluntary disclosure.
- Above all, don’t ignore a letter — a swift, accurate response avoids bigger problems later.
HMRC will keep issuing letters until October 2025, so now’s the time to double-check your calculations.
My take
Tax is complicated enough without HMRC knocking on the door. If you’re unsure whether associated companies apply to you, or whether your marginal relief claims are correct, it’s best to get professional advice. A quick review now could save a costly compliance check later.
