In August 2025, HMRC launched a One to Many letter campaign, which targets companies that HMRC thinks have not declared the correct number of associated companies in their Corporation Tax returns. The purpose of these campaigns is to identify those companies which may have claimed a higher marginal relief than they were entitled to and therefore owe additional tax.
If applicable, Marginal Relief provides a gradual increase in the rate of Corporation Tax between the small profits rate of 19% (for taxable profits below £50,000), and the main rate of 25% (for taxable profits above £250,000). Your company may be able to claim Marginal Relief if its taxable profits from 1 April 2023 are between these two limits. However, these limits are reduced by the number of associated companies that your company has, and also if your accounting period is shorter than 12 months. You can read more about marginal relief here.
Notwithstanding HMRC’s focus on Marginal Relief, there is also an impact on Quarterly Instalment Payments (QIPs) if you get the number of associated companies wrong. Where this happens, you can expose the company to late payment interest, potential penalties and disclosure or enquiry with HMRC. If your company falls into QIPs for the first time, or moves from being a large company, to a very large company, this will impact when Corporation Tax is payable and should be mapped into your cash flow. Our article here contains more information about QIPs.
Visibility is key
We increasingly find that some companies that we work with do not know how many associated companies are relevant for the purposes of these issues and what the impact might be. Whilst with smaller groups and owner managed businesses, this information may be easier to ascertain, this may not always be the case. We often see scenarios where the Finance Director only has visibility downstream for the UK-based subsidiary entity, without being party to matters of the wider international group, or where other business interests that are commonly controlled by the owners are confidential. This lack of visibility and potential confidentiality can create a conflict to ensure compliance.
What action should I take?
To avoid an unnecessary headache with HMRC, you should ensure a level of transparency on a group level to enable the UK Corporation Tax to be correctly calculated and paid on time. Where this level of transparency is not possible you can adopt a conservative position, however this could result in paying more tax or paying it quicker that you need to. The rate of late payment interest on QIPs is currently 6.5% per annum.
What happens if I get it wrong?
If you do not disclose the correct number of associated companies, you may have to:
- Pay more tax
- Pay late payment interest and possible penalties
- Liaise with HMRC either via a voluntary disclosure process or formal enquiry.
If you have not been contacted by HMRC and think you may have an issue either relating to the amount or timing of your tax payments, you should act quickly. This may enable you to correct things on a voluntary basis in advance of enquiry by HMRC.
If you do receive one of these letters from HMRC you should also ensure that you act quickly. Get in touch with Catherine Heyes or your wider corporate tax contacts at PKF who will be able to help.
