HMRC Target Companies For Corporation Tax Errors

HMRC have announced that they are undertaking a campaign to target companies which have understated their corporation tax liabilities as a result of miscaclulating the number of associated companies.

Prior to the headline rate of corporation tax being increased from 19% to 25%, all companies were subject to corporation tax at 19% on their profits. Following the increase in the headline rate, a small companies band of profits (£50,000) was introduced on which corporation tax was still charged at 19%; companies with larger profits (in excess of £250,000) were required to pay the headline of 25% on all  profits.  Profits between the £50,000 and £250,000 being subject to an effective corporation tax rate of 26.5%.

These bands (£50,000 and £250,000) were reduced in situations where a company has associated companies for corporation tax purposes. Hence a company which has 1 associated company would have bands of £25,000 and £125,000.

HMRC are now targeting companies where it has information that the number of associated companies declared is incorrect.