HMRC targets errors in marginal relief claims

HMRC has launched a letter campaign for companies that may have miscalculated corporation tax marginal relief on their returns. Any business receiving a letter must reply within 30 days, even if it believes the calculation on its return is correct. Ignoring the letter could potentially lead to a compliance check and potential corporation tax penalties.

The campaign focuses on companies with ‘associated companies’, but they did not declare this correctly when completing their corporation tax return.

Since April 2023, earnings above £250,000 have been taxed at 25%, those below £50,000 at 19%, with marginal relief easing the transition between the two rates. The reason why the number of associated companies matters is because the £50,000 and £250,000 thresholds must be divided proportionately where associated companies exist.

Where ownership or control links reduce the profit limits for claiming marginal relief. HMRC’s letter states: “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.”

Businesses should review all corporation tax returns for periods including and following 1 April 2023. If a return is incorrect and within 12 months of the statutory filing date, it should be amended online. Where the error falls outside this window, HMRC advises making a voluntary disclosure. Letters will continue to be issued until October 2025, so affected companies are strongly advised to speak with a qualified tax adviser or accountant to ensure all filings are accurate.

If you have any questions on this or wish to know any more, please let us know and ask for one of the tax team.

If you have any further questions regarding this article, please contact Joe Wilson on 023 8046 1237 or email Joe Wilson.