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HMRC is contacting companies that it believes may have failed to include the correct number of associated companies in their Corporation Tax return and consequently claimed marginal relief in error.
The main rate of Corporation Tax rose to25% on April 1, 2023, with a small profits rate of 19% introduced for companies with profits up to £50,000. But marginal relief can be claimed where company profits sit between £50,000 and £250,000, with an effective rate between the 19%and 25% rates.
This is because these thresholds are proportionately reduced where, for example, there is one associated company, and in this case, it reduces the thresholds to £25,000 and £125,000.
What is an associated company?
Companies are considered to be associated where one is controlled by the other, or the companies are under ‘common control’. But in some circumstances, these rules can be difficult to apply, according to the ICAEW, which is one reason why companies may have not declared the correct number of associated companies.
The letters from HMRC are asking companies to check their position, and to amend the Corporation Tax return where the error occurred, if there is still time. Or if it isn’t possible to amend the return because it is too late, HMRC is asking the company to make a voluntary disclosure to HMRC.
The company should also let HMRC know if it feels the information in the return was correct. But each of these responses should be received within 30 days of the date of the letter.
When is it too late to amend a Corporation Tax return?
Usually, you have 12 months from the HMRC submission deadline for your Corporation Tax return. So, if your company must file its return by December 31, 2024, you have until December 31, 2025, to make any changes.
The letter sent out by HMRC explains what each company needs to do, and how to ask for extra support if needed from HMRC. No matter what, the important thing is not to ignore it if you get one of these letters.
Other areas of company tax follow similar rules for associated companies, according to the ICAEW, including the national insurance employment allowance. So, if your company has faced a query from HMRC on this issue on Corporation Tax, then you should consider if the same issue has arisen in any other areas of company taxation.
We can help you meet your obligations
If you are unsure whether your company has fallen foul of the complexity of these rules, then please get in touch and we would be happy to give you the guidance you need.