with thanks to Sara White, Editor, Business & Accountancy Daily
HMRC is running a one-to-many letter campaign targeting companies that have miscalculated corporation tax marginal relief in their company tax returns.
Any business receiving a letter needs to respond, even if they do not think there is an issue with their tax return. Those who fail to respond are likely to face an HMRC compliance check and subsequent penalties.
The issue particularly affects businesses with ‘associated companies’.
In the letter, HMRC 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.’
In all cases, it is essential to discuss any issues with a qualified tax adviser or accountant to ensure that the correct information related to the marginal relief is submitted to HMRC.
Marginal relief reduces the corporation tax liability of companies with taxable profits between lower and upper limits of £50,000 and £250,000.
This situation occurred after changes to corporation tax rates two years ago. From 1 April 2023 companies with taxable profits over £250,000 pay corporation tax at the main rate of 25%. Companies with taxable profits of £50,000 or less will be subject to corporation tax at the rate of 19% and those with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief.
Under the rules, these limits have to be reduced proportionately whenever a company has one or more ‘associated companies’ in an accounting period.
A company is an ‘associated company’ of another company if one of the two has control of the other, or both are under the control of the same person or persons.
Companies have to respond to HMRC within 30 days of the date on the actual physical letter.
Neil Tipping, lead tax enquiry consultant at Croner-i VIP, said:
‘These letters give warning that in the event there is an amendment or disclosure to be made, they must do this within 30 days of the date of the campaign letter, otherwise the inference is clear that an enquiry will be opened into the latest corporation tax returns.
‘Obviously there is a tight timescale to observe in these cases so we would suggest that recipients of these letters act promptly to establish whether HMRC’s concerns are valid in order to avoid a formal enquiry being opened into the company’s returns.
‘There can be a number of reasons why HMRC may be mistaken, such as the alleged associate companies being dormant, or that there is no actual control able to be exercised by the target company over other companies.
‘What clients shouldn’t do in these circumstances is ignore the letter as a formal enquiry following a campaign involving potentially thousands of taxpayers can be extremely lengthy and costly due to HMRC not having the in-depth resources to react promptly to individual representations.’
Any businesses affected need to check all their company tax returns for the accounting period that includes 1 April 2023, including all returns for periods after that date.
If a return is wrong and it has been less than 12 months since the statutory filing date, HMRC advises amending the return online.
However, if the error is outside this timeframe, and it has been more than 12 months since the statutory filing date, the company is advised to make a voluntary disclosure by HMRC.
Even if a company believes its submission is correct, they are required to inform HMRC of the fact, with the HMRC letter stating: ‘If you think your company tax returns are correct, you need to tell us why you don’t need to declare any associated companies. Email us at marginalraterelief@hmrc.gov.uk or write to us.’
‘If in doubt, our consultants at Croner-i VIP can assist in establishing the way forward,’ Tipping added.
Letters are being sent out to companies through until October 2025.
Kind regards,
Howard Gross BFP FCA FCCA CTA
Director
