Have You Received a Letter from HMRC About Corporation Tax Relief?
HMRC is writing to companies it believes may have miscalculated their corporation tax relief under the marginal relief rules. These letters are part of a wider campaign to identify errors linked to the treatment of associated companies.
If you’re a company director, now is a good time to revisit how marginal relief is calculated, especially if you operate more than one company or have links to other businesses.
Understanding Marginal Relief
Corporation tax is charged at different rates depending on a company’s profit levels. For the 2025/26 tax year:
- Profits up to £50,000 are taxed at 19%
- Profits over £250,000 are taxed at the main rate of 25%
- Profits in between these limits benefit from marginal relief, gradually transitioning from the lower to the higher rate
But here’s the key point: these thresholds are shared across associated companies.
For example, if your business has two associated companies, the lower and upper thresholds are divided by three. This reduces the marginal relief band to profits between £16,667 and £83,333.
What Counts as an Associated Company?
Companies are considered associated if:
- One controls the other, or
- Both are under common control
This can include control by individuals, partnerships, or even family members, such as a spouse, civil partner, parent, child, or sibling.
It doesn’t matter if the company is only associated for part of the accounting period, or whether it’s based in the UK or abroad. However, dormant companies are excluded.
The rules are complex and can easily be overlooked, especially when control is shared within families or among separate business ventures.
HMRC’s ‘One-to-Many’ Letter Campaign
If HMRC suspects that marginal relief has been applied incorrectly, your company may receive a letter as part of its latest ‘one-to-many’ campaign.
Key points to know:
- You’ll have 30 days to respond
- You may need to amend your company tax return
- HMRC’s assumptions may not always be correct, such as mistakenly identifying a dormant company as active
Most importantly, do not ignore the letter. If you fail to respond, HMRC could open a formal compliance check. That process can be time-consuming and costly, even if you’ve done nothing wrong.
Could Your Company Structure Be the Problem?
In some cases, having multiple companies under common control can increase your tax bill unnecessarily. For example:
Two companies with £49,000 and £1,000 profits respectively may face a combined tax bill £1,800 higher than if they operated as one.
If you think your company structure could be affecting your corporation tax position, it may be worth taking a closer look. In some cases, reviewing how profits are distributed across associated companies can make a meaningful difference to the overall tax bill. You can find more about how we support businesses through structural reviews and corporation tax planning.
You can view HMRC’s full marginal relief guidance here.