HMRC has been writing to companies that it believes have incorrectly calculated corporation tax marginal relief on their company tax returns.

If you receive one of these letters, do not ignore it. Even if you’re confident your tax return is correct, you must respond within 30 days to avoid a potential compliance check and penalties.

Why is HMRC contacting businesses?

The campaign mainly affects companies with associated companies, where one company controls another, or both are under the same control.

When associated companies exist, the profit thresholds for claiming marginal relief are reduced proportionately. If this hasn’t been factored into the tax return, the corporation tax due could be higher than declared.

How marginal relief works

Marginal relief applies to companies with taxable profits between £50,000 and £250,000.

• £50,000 or less → 19% corporation tax rate
• Over £250,000 → 25% corporation tax rate
• Between £50,000 and £250,000 → 25% reduced by marginal relief

These limits are reduced if your company has one or more associated companies during the accounting period.

What to do if you receive a letter

1. Act quickly; you have 30 days from the letter date.
2. Review your tax returns for the accounting period, including 1 April 2023, and any later periods.
3. If you discover an error:
   • Within 12 months of the filing date → amend your return online.
   • Over 12 months → make a voluntary disclosure to HMRC.
4. If you believe your return is correct → respond to HMRC explaining why you don’t need to declare any associated companies.

Failing to respond to the letter could result in a formal HMRC enquiry, which can be lengthy, stressful, and costly.

Our advice

If you’ve received one of these HMRC letters or are unsure about your marginal relief calculation, then get in touch.

There may be valid reasons why HMRC’s information is incorrect, such as:

• The associated companies are dormant.
• There is no actual control between the companies.

We can review your company’s position, identify any issues, and guide you on the best course of action.

For more information about marginal reliefs – Marginal Relief for Corporation Tax: service availability and issues – GOV.UK

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