Miscalculated corporation tax reliefs under HMRC spotlight

The issue centres on how corporation tax rates are applied. Profits up to £50,000 are taxed at 19%, while profits above £250,000 face the main 25% rate. Marginal relief eases the transition between the two. However, these thresholds must be divided among associated companies. For instance, where a company has two associated companies the thresholds are divided by three, so the full rate would apply on profits over £83,333.

The definition of an associated company can be complex. It covers situations where one company controls another, or both are under common control. In some cases, even companies owned by close family members can fall within scope. Dormant companies are not included, but if HMRC wrongly assumes otherwise, affected businesses will need to respond quickly to correct the record. Any business that receives a letter will have just 30 days to respond and, if necessary, amend their returns. Ignoring such correspondence risks a full compliance check, which can be both time-consuming and costly.

Directors should also consider whether their current structure is still tax efficient. In some cases, merging companies under common control can reduce the overall tax bill. For example, two companies with profits of £49,000 and £1,000 could save around £1,800 in tax if combined into a single entity.

This campaign underlines two points. First, that HMRC is actively reviewing corporation tax calculations with a focus on associated companies. Second, that directors need to take a proactive approach to ensure their company structures remain efficient and compliant. Those in receipt of a letter should treat it as a priority and seek advice promptly.

HMRC’s guidance on marginal relief can be found here.