What are the biggest compliance risks for UK Corporation Tax returns in 2024/25?

Overview: why compliance risk is rising for 2024/25

UK Corporation Tax compliance has become a higher-stakes exercise for 2024/25. The underlying tax rules are not new in principle, but the way businesses are expected to evidence positions, apply nuanced regimes, and align tax reporting with accounting and operational reality has sharpened. HMRC has continued to modernise the way it gathers information, interrogates returns, and uses third-party data. At the same time, corporate groups are facing pressure from cost inflation, tighter financing conditions, and increased scrutiny of cross-border arrangements. All of these factors can amplify the risk of mistakes, omissions, or positions that are hard to defend under enquiry.

For most companies, the biggest compliance risks are not exotic tax-planning structures. They are practical, recurring issues: reconciling accounting profit to taxable profit correctly; handling complex areas like interest restriction, losses, and capital allowances; applying transfer pricing appropriately; and ensuring that claims, elections, and disclosures are made in the correct form and within the right timeframe. A second cluster of risks comes from governance: whether tax data is complete, whether documentation exists to support judgments, whether the company can demonstrate reasonable care, and whether the tax function has good controls over what is ultimately submitted.

This article sets out the biggest compliance risks for UK Corporation Tax returns in 2024/25, focusing on the areas that most commonly lead to HMRC queries, adjustments, penalties, or avoidable cash-flow costs. It also highlights practical control steps that can reduce risk without turning the return process into a major project.

Risk 1: Profit-to-tax bridge errors and incomplete adjustments

The Corporation Tax return starts with accounting profit, but the tax outcome depends on a series of adjustments that can be surprisingly easy to misapply. Common risks include: missing add-backs for non-deductible expenditure; incorrect treatment of provisions; over- or under-accruals for bonuses and commissions; misclassification of capital versus revenue items; and overlooking items recorded below EBITDA that have tax consequences (for example, fair value movements, impairments, or foreign exchange effects).

In 2024/25, the risk is heightened because many businesses have experienced unusual accounting impacts over recent years: restructuring costs, supply chain disruptions, energy-related costs, rapid changes in interest rates, and changing valuations. These impacts can create non-standard journal entries that do not fit neatly into prior-year tax workpapers. If the tax team relies too heavily on last year’s templates without scanning the general ledger for new categories of spend or income, adjustments can be missed.

Practical controls include: a structured review of the trial balance against the tax computation mapping; an “unusual items” checklist that prompts review of non-recurring or judgmental entries; reconciliation of corporation tax expense to current tax payable; and a variance analysis against prior-year adjustments to ensure that large movements are understood, not just accepted.

Risk 2: Uncertain tax treatments and inadequate support for judgments

Even where a company’s computation is technically correct, compliance risk can arise if the company cannot demonstrate that it took reasonable care or cannot provide contemporaneous documentation for judgment calls. Areas that frequently involve judgment include: whether expenditure is wholly and exclusively for the trade; whether an item is capital; the existence and valuation of intangible assets; the appropriate tax treatment of hedging; the correct classification of leases and embedded derivatives; and whether an overseas activity creates a permanent establishment.

In 2024/25, HMRC’s appetite for detailed evidence is strong. If a return includes positions that a knowledgeable person might consider “borderline,” the burden shifts quickly towards explanation and documentation. This is particularly relevant where the tax outcome is favourable, such as deductions for significant advisory fees, large provisions, or restructuring costs that the business considers exceptional. Without a clear narrative and supporting documents (contracts, invoices, internal approvals, board papers, and the technical reasoning), an otherwise defensible position can become expensive to manage through enquiry.

Good practice is to maintain an issues log through the year, not just at year-end, and to write short technical notes for key positions. This does not need to be lengthy. What matters is that it is contemporaneous, specific to the company’s facts, and clearly linked to the amounts in the computation.

Risk 3: Capital allowances and the boundary between repairs and capital expenditure

Capital allowances remain a major compliance hotspot because they sit at the intersection of tax law, accounting policy, and operational spend. For many businesses, especially those with property, plant, machinery, technology infrastructure, or vehicles, the quantum can be material. The risk is not only missing relief, but also incorrectly claiming it.

For 2024/25, the practical challenge is that project spend often comes through multiple cost centres: facilities, IT, production, and external contractors. Costs can be bundled into large invoices covering design, installation, software configuration, and maintenance. If costs are not analysed properly, claims can include ineligible components or miss qualifying elements. Another risk is the repairs versus improvements distinction for property and equipment: a repair is usually deductible as revenue, while an improvement may be capital and eligible for allowances (or fall within a different regime). Misclassification can distort both the P&L adjustments and the allowances claim.

Strong controls include: obtaining detailed fixed asset registers; reconciling additions to the trial balance; reviewing major projects invoice-by-invoice; and involving operational owners who understand what was actually delivered. Where the company has significant property spend, periodic specialist review can be worthwhile, but even a simple internal process for collecting project descriptions and split costs can reduce errors.

Risk 4: Research and Development (R&D) claims and evidencing qualifying activity

R&D relief remains a high-risk area because it is both valuable and heavily scrutinised. The compliance risk is not simply “getting it wrong”; it is that a claim can trigger enquiries, delays to repayments, and potentially penalties if HMRC considers the claim careless or unsupported. R&D claims often involve a combination of technical eligibility (does the project address scientific or technological uncertainty?) and financial accuracy (are the costs correctly identified, apportioned, and within scope?).

Common issues include: describing routine software development as R&D without sufficient evidence of uncertainty; claiming costs for projects that are commercially innovative but not technologically uncertain; over-allocating staff time; including subcontractor or externally provided worker costs that do not meet the relevant criteria; and failing to keep adequate project records. Another frequent risk is disconnect between the narrative submitted and the cost base in the computation. If the narrative references a handful of projects but the cost pool includes wider activity, HMRC may view the claim as unreliable.

For 2024/25, businesses should treat R&D compliance like a controlled process: keep project selection criteria documented, maintain timesheet or time-allocation evidence (or a robust alternative), and ensure that the claim is reviewed by both technical and finance stakeholders. Consider whether the company needs to tighten governance around who approves R&D claims and how evidence is retained.

Risk 5: Loss relief, group relief, and the post-2017 loss restriction rules

Loss utilisation is an area where mistakes can have long-term consequences. The UK loss rules are detailed, particularly for companies with carried-forward losses, groups that surrender losses, or companies with mixed income streams. Since the post-2017 reforms, many groups must apply an “allowance” concept for carried-forward losses and calculate how much of profits can be sheltered. The rules can also interact with the distinction between trading losses and other losses, and with the separate treatment of non-trading deficits on loan relationships.

Compliance risks in 2024/25 include: miscalculating the available loss allowance for the group; applying carried-forward losses to the wrong type of profit; incorrectly surrendering group relief where companies are not in the same group for the relevant period; or failing to consider restrictions where ownership changes or major changes in trade could limit the use of losses. There is also a practical risk of poor documentation around group relief surrenders and claimants, particularly where group structures change during the year.

Controls include maintaining a loss tracker by company and category, reconciling it to prior-year filings, and ensuring that group relief claims and surrenders are executed with clear internal approvals and consistent period alignment. If there have been acquisitions, disposals, or reorganisations, the tax team should explicitly re-check loss availability and any restrictions rather than assume continuity.

Risk 6: Corporate Interest Restriction (CIR) and financing complexity

The Corporate Interest Restriction rules can be a significant compliance risk even for groups that do not consider themselves highly leveraged. Changes in interest rates, refinancing activity, and intra-group funding arrangements can push groups into CIR territory unexpectedly. The rules involve calculating tax-interest amounts, group ratios, and possible elections, often requiring coordination with consolidated accounts and group reporting.

Common pitfalls include: failing to identify that the group is within scope; misclassifying amounts as interest for CIR purposes; errors in group ratio calculations; failing to submit required elections or reporting company appointments on time; and inconsistencies between the tax return and group-level CIR filings. Another risk is treating CIR as a one-off exercise. In reality, the group’s position can change year-on-year based on interest expense, EBITDA-like measures, and the profile of the group’s external financing.

For 2024/25, review whether the group’s financing landscape has changed materially: new facilities, covenant amendments, intercompany loan re-terms, cash pooling, or interest rate hedges. The tax team should ensure it has a clear map of all loan relationships and financing instruments, with a documented view on which amounts are tax-interest and how they feed into any CIR computation.

Risk 7: Transfer pricing and the supporting documentation gap

Transfer pricing compliance risk is not limited to large multinationals. Any UK company that transacts with connected parties can face risk if pricing is not arm’s length or cannot be evidenced. Typical connected-party transactions include management charges, cost recharges, royalties, interest on intercompany loans, provision of services, distribution arrangements, and transfer of intellectual property or other assets.

In 2024/25, HMRC continues to expect that material related-party transactions are supported by documentation that explains: what services were provided, why they were needed, how costs were allocated, and why the pricing is arm’s length. A frequent risk is that management charges are booked with limited detail and no demonstrable benefit. Another risk is that intercompany interest rates are not benchmarked or are not consistent with the borrower’s credit profile and the terms of the lending arrangement. Where a group has changed its operating model, introduced new IP structures, or moved functions across borders, the risk increases substantially.

Practical steps include ensuring that intercompany agreements are up to date, maintaining evidence of services (work logs, deliverables, emails, project plans), and preparing proportionate transfer pricing documentation. For mid-sized groups, documentation does not need to be elaborate, but it should be credible, consistent, and aligned with the accounts.

Risk 8: Cross-border issues, withholding taxes, and permanent establishment exposure

Cross-border compliance risks can arise even when a company’s core business is UK-based. Examples include: paying royalties or interest overseas; making payments to non-resident suppliers; seconding staff; selling into overseas markets; and hosting servers or key decision-making outside the UK. The risks include missing withholding tax obligations, incorrectly applying treaty relief without the right paperwork, and inadvertently creating a permanent establishment in another jurisdiction (or conversely, failing to recognise when overseas activity creates UK taxable presence).

For 2024/25, remote working and cross-border mobility continue to create complexity. A business may have employees or directors spending significant time overseas, negotiating contracts, or managing teams. This can create PE risk and can also affect transfer pricing, payroll obligations, and the attribution of profits. On the outbound side, UK companies may also have foreign withholding taxes that interact with UK double tax relief claims. Errors can occur if foreign tax credits are claimed without proper evidence or in the wrong period.

Controls include mapping cross-border payments and verifying whether withholding applies, ensuring treaty documentation is in place, and performing periodic reviews of where key people are operating and what activities they undertake. Where overseas business is growing, it may be prudent to formalise the analysis with a PE risk assessment and ensure governance around contract negotiation and signing authority.

Risk 9: Close company and participator issues

For owner-managed businesses and groups that fall within the “close company” definition, compliance risks can arise around transactions with participators, loans to participators, and benefits or distributions that are not treated correctly for tax. Examples include: director loan accounts; overdrawn balances; the tax consequences of writing off loans; transactions at undervalue; and the distinction between salary, dividends, and loans.

In 2024/25, a common risk is that businesses under cash pressure rely more heavily on director loan accounts, informal drawings, or ad-hoc payments. Without careful tracking and timely decisions on how these are treated, the company can face unexpected charges and administrative burdens. Another risk is misclassification of distributions and the documentation around them, particularly where there are complex share classes or shareholder arrangements.

Strong governance includes monthly reconciliation of director loan accounts, clear board minutes or resolutions for dividends, and early tax review where participator balances are material. The earlier these issues are identified, the easier it is to correct them before the filing date.

Risk 10: Employment-related tax interactions and share-based payments

Corporation Tax compliance can be affected by employment tax issues, especially where there are share-based payments, bonus arrangements, termination payments, and benefits. A common compliance risk is mismatched treatment between payroll reporting and the corporation tax deduction. For example, share-based payment deductions can depend on the actual amounts taxed through employment income rules, and the timing can differ from accounting charges.

Termination and settlement payments are another high-risk area. Companies may account for and deduct costs, but the payroll treatment may be uncertain or inconsistently applied, which can create broader HMRC scrutiny. Benefits provided through expense policies can also lead to disallowances if they are not wholly and exclusively, or if they are treated incorrectly for payroll purposes.

For 2024/25, it is sensible to ensure that the tax return process includes a checkpoint with payroll/HR to identify material employment-related events in the period. This avoids surprises late in the process and helps ensure consistent treatment across taxes.

Risk 11: Intangible fixed assets, IP, and amortisation rules

The UK regime for intangible fixed assets can be complex, particularly for companies that acquire businesses, internally develop IP, or reorganise ownership of IP within a group. Compliance risks include: incorrect classification of assets; mismatched tax treatment of amortisation; failure to identify impairment or disposal events with tax consequences; and incorrectly applying rules to assets that fall outside the regime (or vice versa).

In 2024/25, this risk is often triggered by acquisitions and integration projects. Purchase price allocations can create new intangible assets in the accounts, and the tax treatment depends on various factors including how the asset was acquired and when. Another risk is that IP-related income streams (royalties, licence fees, embedded IP value in products) are not aligned with the company’s transfer pricing and IP ownership narrative, increasing the chance of challenge.

Controls include careful tracking of intangible assets created through acquisitions, reconciliation to the fixed asset register, and coordination between the tax team and those responsible for purchase accounting. If the company has performed group reorganisations involving IP, this should be reviewed explicitly in the tax computation and not assumed to be “accounting-only.”

Risk 12: VAT and other indirect tax issues feeding into Corporation Tax

Although VAT is a separate tax, errors in VAT treatment can affect Corporation Tax computations through the P&L. For example, irrecoverable VAT should usually be included in the cost base, and errors in VAT recovery rates can change the deductible expense. Similarly, customs duties and import VAT can affect inventory valuation and cost of sales, which then flows through to taxable profits.

In 2024/25, many businesses have ongoing cross-border trade complexities, changes in supply chains, and evolving VAT partial exemption positions. If finance teams correct VAT errors through journals without coordinating with tax, it can create confusing movements in expense categories and create risk of duplicate or missing adjustments in the corporation tax computation.

A practical step is to ensure that significant VAT adjustments and prior-period corrections are flagged to the corporation tax preparer, with clear explanation of where they sit in the accounts and how they should be treated in the computation.

Risk 13: Filing deadlines, iXBRL tagging, and return completeness

Compliance risk is not only technical; it is operational. Missing a filing deadline can lead to penalties and increased scrutiny. Submitting a return with missing attachments, inconsistent figures, or incorrect iXBRL tagging can also trigger HMRC queries and create avoidable administrative work. Many errors happen at the final stage: versions of accounts differ; the computation is updated but the return is not; or figures in the CT600 do not match the detailed schedules.

For 2024/25, businesses should ensure that there is a clear timetable, with defined roles and an internal “lock” process for final numbers. It is also important to ensure that late audit adjustments are captured and that the tax computation is refreshed accordingly. Even where iXBRL tagging is outsourced or handled by software, a sense check of the key tags and the final package can reduce the risk of rejected submissions or HMRC questions.

Risk 14: Inadequate governance, poor controls, and the “reasonable care” standard

When things go wrong, HMRC’s view of penalties often depends on whether the company took reasonable care. This is where governance matters. If the company can show a structured process, evidence of review, clear documentation, and prompt correction of identified errors, the risk of penalties can reduce even if an adjustment is ultimately required.

In 2024/25, compliance risk is often intensified by resource constraints. Finance teams may be leaner; staff turnover can be higher; and tax expertise may be concentrated in one person or in an external adviser. This increases key-person risk and the chance of process failure. Another governance risk is poor communication between finance, legal, treasury, and operational teams. Major contracts, reorganisations, financing changes, and settlements can all affect tax, but the tax team may only learn about them after year-end when choices have already been made.

Practical governance steps include: a year-round tax risk register; quarterly touchpoints with treasury and legal; a standard checklist for significant transactions; formal review and sign-off of the corporation tax computation; and retention of supporting evidence in a central repository. The goal is not bureaucracy; it is predictability and auditability.

How to reduce 2024/25 risk without over-engineering the process

Most companies can materially reduce compliance risk with a small set of repeatable steps. First, map the areas that are material for your business: if you have heavy capex, capital allowances are a priority; if you have cross-border activity, transfer pricing and withholding need attention; if you are innovative, R&D governance matters. Then, build a short list of “must-do” controls that are proportional to size and complexity.

Second, aim for a clean trail from trial balance to computation to CT600. This includes clear workpapers, consistent numbers, and documented judgments. Third, treat claims and elections as a controlled deliverable: list what you are claiming, why, and what evidence exists. Fourth, reduce late surprises by creating simple internal prompts: have procurement flag large one-off invoices, have treasury flag refinancing, have HR flag major incentive events, and have legal flag settlements or contract changes.

Finally, remember that compliance risk is not only about avoiding mistakes; it is about being able to explain your position quickly and credibly. In practice, the companies that experience the least disruption are those that can respond to HMRC queries with clear narratives and documents that match the return.

Conclusion: the biggest risks are predictable and manageable

The biggest compliance risks for UK Corporation Tax returns in 2024/25 are concentrated in predictable areas: profit-to-tax adjustments, claims and elections, loss and interest restrictions, capital allowances, transfer pricing, R&D, cross-border issues, and governance. These risks are magnified by business change, economic volatility, and the increasing availability of data to HMRC.

While the technical rules can be complex, most compliance failures stem from process weaknesses: incomplete data capture, lack of documentation for judgments, disconnected teams, and rushed finalisation. By focusing on material areas, implementing a handful of robust controls, and maintaining contemporaneous evidence, companies can significantly reduce the likelihood of enquiry, penalties, and costly corrections. The objective is a return that is not only accurate, but also defensible, consistent, and well-supported.