Claiming Marginal Relief
Sean Rustrick • 26 May 2026
HMRC is currently targeting companies that may have incorrectly claimed corporation tax marginal relief (MR). If your company falls into this category, you might receive a letter questioning your claim. So what’s going on and what should you do?
When corporation tax increased in April 2023, marginal relief was introduced to ease the jump. Companies with profits up to £50,000 pay 19%. Once profits go over that, the 25% main rate kicks in. Marginal relief softens that jump for companies with profits between £50,000 and £250,000, tapering the tax increase so it’s not such a shock.
But, if your company is associated with other companies, they must share the marginal relief limits. You don’t get separate £50,000 and £250,000 thresholds for each one!
Companies are seen as “associated” if; they’re in the same group, they’re controlled by the same people or if they’re commercially linked.These rules are tricky, and HMRC believes many businesses have misunderstood them, leading to overclaimed relief.
If HMRC thinks you may have overclaimed, it will send a letter. Some versions are quite firm and hint at compliance checks. What you must do is;
- Review your corporation tax return for the period including 1 April 2023 onwards
- Check whether the companies HMRC lists as “associated” really are associated
Don’t assume HMRC is automatically right. In some cases, its list has included passive companies that shouldn’t count towards the marginal relief calculation.
Technically, you’re not legally required to reply within 30 days. Practically? You should. Ignoring it increases the risk of a formal enquiry later. If you need more time, ask for an extension. And if you still believe your marginal relief calculation is correct, ask HMRC to explain its reasoning.
If you receive a marginal relief letter, don’t panic! Just give us a call on 01622 738165 and we can figure out if your marginal relief calculation is correct and how to move forward with HMRC
You’ve got a big unpaid invoice. It’s getting further past its due date and you’re starting to accept it may never be paid. But you’ve already handed the VAT over to HMRC. So, how do you get that money back? There are two main ways to recover the VAT. The first is bad debt relief. To claim this, the invoice must be more than six months overdue (if there’s no payment date, the clock starts from the invoice date). You also need to formally write the debt off in your accounts and confirm it hasn’t been sold or transferred. Once those conditions are met, you reclaim the VAT on your next return. But you have to wait at least six months. The second option is often quicker: issue a credit note. If you agree to reduce the amount owed (for example, by offering a discount to encourage settlement) you can reduce the VAT. The credit note must be issued within 14 days of agreeing the reduction, and you adjust the VAT in the same quarter you issue it. That can mean recovering the VAT sooner, or even avoiding paying it in the first place if timed correctly. Bad debt relief claims are time-limited (four years and six months), but issuing a credit note isn’t subject to the same deadline. If you’ve missed the bad debt window, a credit note may still solve the problem. So, issuing a credit note is often the faster way to get your cash back. Give Rustrick Accountants a call on 01622 738165 and we can help you get the ball rolling.
If you own residential rental property personally, you’ll already know the frustrating bit: residential rent is VAT exempt. That means you can’t reclaim VAT on repairs, maintenance or other costs. But if you also run a VAT-registered company, there might be a way to improve the position. If you run multiple activities under one VAT registration, partial exemption rules apply. If the VAT linked to your exempt activity (like residential letting) is: No more than £625 per month on average, and No more than 50% of your total input VAT then you may be able to reclaim all your VAT; including the VAT relating to the rental property. But, for VAT purposes, you and your company are separate legal entities. So if you personally own the property, your company can’t simply reclaim the VAT on its costs. The activities have to belong to the same taxable person. So what should you do? Rather than transferring the property into the company (which can trigger other tax issues), you could grant your company a lease over the property. The company then becomes the landlord, manages the property, and the rental activity falls within the company’s VAT registration. But if your property costs are likely to regularly exceed the 50% rule, this approach may not work. You could structure the lease with a lump sum payment and a low annual rent. Part of that may be treated as capital and, if it falls within your annual CGT exemption, could be largely tax-free. With careful structuring and planning, you can turn a VAT cost into a VAT saving! Give Rustrick Accountants a call on 01622 738165 and we can help you save money today.
Landlords are facing another tax squeeze following the latest Budget. Whether you own property personally or through a company, changes are coming and now is the time to start planning. If you’re an unincorporated landlord, from 6 April 2027, a new property income tax rate will apply. It’s 2% higher than normal income tax rates, meaning rental income will be taxed at: 22% (basic rate) 42% (higher rate) 47% (additional rate) The personal allowance will also be set first against employment, trading or pension income (not property income!). Since property income will be taxed at higher rates, this could push up the bill even further. So, what can you do? If you own property jointly with a spouse or civil partner, you might save tax by adjusting the income split. By default, rental profits are split 50:50, but by using a Form 17, you can change this to reflect actual ownership. If more of the rental income is shifted to the lower earner, it can significantly cut the overall bill. Another idea? If possible, delay non-urgent repairs or deductible expenses until after 6 April 2027 so you get relief at the higher rates. If you run a property company you need to be aware that from 6th April 2026, dividend tax rates for basic and higher-rate taxpayers are increasing by 2%. That means taking profits out of your company will cost more. So, if your company has kept profits, consider paying dividends before April 2026 to lock in the lower rates. Make sure you’re using all shareholders’ dividend allowances and basic rate bands. Watch out! If you have outstanding directors’ loans, repaying them via dividends will become more expensive after April 2026. Now is the time to review your structure, especially if property is jointly owned. Waiting could mean paying more tax than necessary! Give Rustrick Accountants a call on 01622 738165 and we can help you figure out what is most tax efficient for you
Electric vehicles used to come with significant tax perks; no road tax, very low company car charges and generous reliefs for businesses. While they are still tax-efficient in many cases, those advantages are gradually being reduced. From April 2025, EVs are no longer exempt from Vehicle Excise Duty. Most new electric cars now pay the standard annual rate (currently £190), and vehicles with a list price over £40,000 also face the £410 “expensive car” supplement for five years. That increases annual ownership costs, although EVs can still be cheaper to run overall, particularly with access to low-cost charging. There is still government support through the Electric Car Grant, which offers up to £3,750 off eligible new vehicles. However, not all models qualify, so it is important to check eligibility before buying. For company car users, EVs are still good. The Benefit-in-Kind rate is rising gradually from 2% to 5% by 2028/29, but that is still significantly lower than most petrol or diesel alternatives. Electric vans also retain a 0% BIK rate until at least April 2028. Businesses can continue to claim 100% capital allowances on new electric cars (if purchased outright) and on charging points, making them tax-efficient investments. Basically, EVs are still a sensible option from a tax perspective, just not quite the bargain they once were. Running the numbers before making a purchase is now more important than ever; give us a call on 01622 738165 and we can help you with that!
The 2025 Budget wasn’t exactly packed with giveaways, but hidden among the tax hikes was a small (and very welcome) perk for employers and employees. Right now, there’s a tax exemption if you provide things like eye tests or homeworking equipment to employees. But if an employee buys it themselves and you reimburse them? That reimbursement is taxable. But, from 6 April 2026, reimbursements for certain everyday work-related expenses will be exempt from both income tax and National Insurance. This includes: Eye tests Flu vaccines (will be tax-free when provided directly) Homeworking equipment Accommodation, supplies or services needed to do the job So whether you provide the benefit directly or simply repay your employee for it, the tax treatment will be the same. So, from April 2026, reimbursing employees for small, work-related costs will be simpler and tax-free. Give us a call on 01622 738165 if you want more information or help with this change.
HMRC is now reaching out to employers and employees by letter and text to let them know when a tax refund is due. The big change? Refunds aren’t automatic anymore; you have to claim them yourself. The quickest way to do this is through the HMRC app. Just open the app, go to the PAYE section, and if you’re owed a refund, a green Claim button will show the amount. Tap it, and the money should hit your bank account within a week. No app? No problem, you can also claim online or by contacting HMRC directly using the details in their letter. The key point: if you don’t take action, the refund won’t be paid. So check your PAYE info and claim what’s yours! Not sure if you have received a letter or text? Give Rustrick Accountants a call on 01622 738165 and we can help you out
HMRC has started a new campaign targeting sole traders and partnerships, checking that expenses claimed in self-assessment returns are properly adjusted for private use. If you’re self-employed, it’s worth paying attention; mistakes can trigger unnecessary questions or even penalties. The focus is on disallowable expenses (especially costs that are partly personal). Think cars, phones, and similar items where you use them for both business and private purposes. For example, if you spend £2,200 on car costs and only 8,000 of the 14,000 miles are business, HMRC expects you to adjust the private portion proportionally. It’s not just cars and phones, either. Business entertainment, travel, or marketing expenses can also come under scrutiny if they include personal use. The safest approach is to be clear and consistent in your calculations and records. Tips to stay on HMRC’s good side: Keep detailed records for items like mileage or phone use. Don’t just copy last year’s figures. If you account for private use before filling in your tax return, explain it in the additional information section. HMRC accepts reasonable estimates where precise calculation is tricky (for example, home office costs or phone use). Using simplified expenses for homeworking can help avoid disputes. In short, make sure you understand HMRC’s rules on private use, check each tax return carefully, and adjust expenses appropriately. Unsure or just want a friendly, helping hand? Give Rustrick Accountants a call on 01622 738165 !
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If you provide employees with a company van (or fuel for private use) the benefit-in-kind charges are going up again next tax year. These charges are increased annually in line with the Consumer Price Index, and the 2026/27 figures have now been confirmed. The benefit applies if an employee: Has a company van available for private use Receives fuel for private journeys in a company van Receives fuel for private use in a company car It’s worth noting that the van charges are fixed flat rates, while company car fuel uses a multiplier system. Here’s how the numbers compare:
Late January can hit hard—especially if you suddenly realise you need to file a tax return but haven’t even told HMRC yet. Don’t worry, you’re not alone. This happens more often than you think, particularly if you’re a first-time filer or returning to Self Assessment after the Christmas break! Usually, HMRC expects you to let them know you’re liable for Income Tax or Capital Gains Tax by 5 October following the end of the tax year. If you miss the 5 October deadline, you could face penalties, but if you act quickly you can significantly reduce them. So, if it’s late January and you realise you’ve missed the notification deadline, the most important thing is to act immediately: Register for Self Assessment online as soon as you can. Work out your tax liability and pay it by 31 January. If you haven’t received your Unique Taxpayer Reference (UTR) yet, you can still use your National Insurance number. Paying the tax you owe on time can reduce the risk of penalties, as HMRC will base fines on any ‘potential lost revenue.’ Any HMRC penalties will depend on: How late your notification was Whether your disclosure was prompted by HMRC or unprompted Whether the failure was deliberate The penalty will be 0% if the notification was unprompted and not deliberate, but it could be up to 100% of the tax due for “deliberate concealment”. You might avoid penalties entirely if you have a reasonable excuse, weren’t deliberately late, and notified HMRC without unnecessary delay! Once you’re registered, submit your tax return as soon as possible to avoid more late filing penalties. Remember, the deadline is the 31st January after the tax year or three months after HMRC issues the notice. If you’ve filed your tax return before, don’t create a new account. Doing so can delay processing and mess up your tax calculations. Instead, reactivate your existing Self Assessment record by calling the Agent Dedicated Line or completing form SA1. If you have received a late tax return notification, don’t panic! Give Rustrick Accountants a call on 01622 738165 and the friendly team will sort it out for you and reduce the penalties by as much as possible