Azets Update: HMRC targeting companies that may be miscalculating Marginal Relief

Based on available HMRC data and using public platforms, such as Companies House, HMRC is contacting companies and their officers with messages such as:

• “Your company may have paid the wrong amount of Corporation Tax”
• “Check your company has paid the right amount of tax”

These notifications are triggered where associated companies have not been declared when claiming Marginal Relief on a Company Tax Return.

What is Marginal Relief?

Marginal Relief provides a gradual reduction in Corporation Tax for companies with profits between the small profits rate and the main rate of corporation tax. It ensures that companies just above the small profits threshold do not face a sudden jump in their tax liability. However, the calculation depends on accurate identification of associated companies, which affects the thresholds and the resulting marginal relief.

Who could be impacted?

This issue could affect a significant number of corporates, particularly where:

• Singleton companies are under common control by the same family members or shareholders
• Computations have not been updated to include associated companies following recent rule changes

Failing to consider associated companies correctly can lead to underpayment or overpayment of Corporation Tax, as well as potential penalties from HMRC for filing incorrect returns. Ignoring the HMRC notice could also lead to a full enquiry, leading to additional costs and business disruption so should not be ignored, even if HMRC’s data is incorrect.

What has changed?

Recent changes to the associated company rules mean that companies under common control must review their ownership, control, economic and financial structures and position carefully when preparing tax returns and computations where there is more than one company involved. Any oversight could result in incorrect filings for periods from 1 April 2023 onwards.

Required action

We strongly recommend that businesses:

1. Review and confirm the associated companies position for all relevant entities.
2. Ensure disclosures are correctly reflected in Corporation Tax returns.
3. Check submitted returns that included periods after 1 April 2023, even if no HMRC letter has been received yet.

The HMRC letters specify:

• The company has 30 days to act once a letter is received
• Review the Company Tax Return for the period including 1 April 2023 and any later periods
• If any returns are less than 12 months incorrect, corrective action should be taken promptly
• Voluntary disclosures can be made where incorrect returns are over 12 months past the statutory filing date

Even if you haven’t received a letter, it is essential to ensure that your company’s position is fully compliant.

We’re here to help

Our team can assist with:

• Reviewing your associated companies’ position
• Updating Corporation Tax returns and disclosures as required
• Advising on potential corrective actions if errors are identified

Proactive action now can help mitigate the risk of HMRC enquiries, penalties, or unexpected tax liabilities.

Please get in touch with Lyn Newbury, lyn.newbury@azets.co.uk or 01233 629255 to discuss your position and ensure your filings are accurate.