HMRC Issues One to Many Letter
HMRC is contacting companies where it believes there may be errors in the calculation of Corporation Tax Marginal Relief in their company tax returns.
The letters are prompted by information HMRC holds, suggesting that there are associated companies which have not been disclosed in their Corporation Tax calculations. Since the presence of associated companies reduces the thresholds for claiming marginal relief, this oversight could mean an underpayment of Corporation Tax.
Letters are already being issued and will continue to be sent until 6 October 2025. Taking swift action to review and address HMRC’s concerns can significantly minimise the risk of a formal enquiry.
How Marginal Relief works
It is possible to reduce Corporation Tax, through Marginal Relief, if a company’s taxable profits are between £50,000 and £250,000.
Current Corporation Tax rates are
- 19% for taxable profits below £50,000 (small profit rate); and
- 25% for taxable profits above £250,000 (main rate).
Under the Marginal Relief rules, a sliding scale of Corporation Tax applies between the lower and upper profit thresholds. This means the effective Corporation Tax rate gradually rises from 19% on profits above £50,000, up to 25% on profits exceeding £250,000.
This rule changes when associated companies are present. For associated companies, the limits are proportionally reduced:
Example: For a company with 3 other associated companies, the limits are divided by 4.
- Lower limit becomes £12,500; and
- Upper limit becomes £62,500.
A company is an ‘associated company’ of another company if one of the two has control of the other, or both are under the control of the same person or persons.
Further details on applying the correct Corporation Tax rate and the impact of associated companies can be found in our factsheet, available here.
Declaring associated companies
The letter is designed to ensure companies claiming Marginal Relief have been transparent about all associated companies and have correctly paid their Corporation Tax. To help determine this, recipients are encouraged to take a few key steps, including:
- Checking all company tax returns for the accounting period that includes 1 April 2023 and any returns for periods after that date;
- Amending any returns that are not correct, if it has been less than 12 months since the statutory filing date;
- Making a voluntary disclosure for any returns that are incorrect, if it has been more than 12 months since the statutory filing date; and
- Providing an explanation to HMRC outlining why the tax return is accurate and the absence of any associated companies requiring declaration.
Timely response
Recipients must respond within 30 days. If they don’t, HMRC may proceed based on existing information, which could trigger a compliance check on the latest Corporation Tax return. A response is required even if the company is confident in its tax calculations.
HMRC also considers whether the recipient has amended their return, made a disclosure, or explained why associated companies don’t need to be declared when deciding on compliance checks.
How M+A Partners can help
Our experienced tax team is here to help you understand why you may have received a One to Many letter. In some cases, the reasons for not declaring associated companies are entirely valid – such as them being dormant or there being no actual control between the companies.
We can carry out a detailed review of your company’s position, identify any potential issues, and provide clear, expert guidance on the appropriate next steps.
