Have you received an HMRC letter about miscalculated Corporation Tax relief?

If your company has miscalculated its marginal Corporation Tax relief, you may be due to receive a letter from HMRC – if you haven’t already as part of the tax agency’s new campaign.

HMRC is sending one-to-many letters warning companies to make sure they aren’t making any errors when claiming Corporation Tax relief, such as ignoring associated companies.

Here’s a reminder of the rules and what you should do if you receive one of these letters.

Corporation Tax rules for associated companies

If you’re a company director, you should be aware that the tax rate on the first £50,000 in profits is 19%, while the 25% main rate applies when company profits reach £250,000.

The transition from the lower rate to the main rate is eased by marginal tax relief, but some company directors may not be aware that the profit thresholds apply across all associated companies.

For example, if a company has two associated companies, marginal relief will apply to profits from £16,667 to £83,333, unless the other companies are dormant.

HMRC considers companies to be associated if one company is under control by the other, or both companies are under common control. It doesn’t matter where the companies are resident or whether they were only associated for part of the accounting period.

The rules can be quite complicated – in some cases, if a director’s spouse, civil partner, parent, child, or sibling also owns a company, HMRC could treat this as an associated company, too.

What to do if you receive an HMRC Corporation Tax letter

If your company receives a letter about this from HMRC, you will have 30 days to respond and make any necessary amendments to your Corporation Tax marginal relief claim.

Even if HMRC was mistaken in targeting your company and the alleged associated business is dormant, you shouldn’t ignore the letter and should still provide an update to HMRC.

If HMRC doesn’t hear from you, this could lead to a time-consuming formal compliance check.

It’s therefore essential to review your overall company structure if having associated companies increases your Corporation Tax bill, as it may be better to combine associated companies.

For more information, you can read the government’s guide to Marginal Relief for Corporation Tax, or seek professional financial advice for Corporation Tax planning.

Here at gbac, we have a team of accountants in Barnsley who are knowledgeable about tax reliefs and can assist your company with efficient Corporation Tax management.