UK Transfer Pricing documentation rules: what’s changing?

The UK is preparing to tighten its transfer pricing documentation rules, following a Government consultation in spring 2025. These changes are likely to impact a broad range of businesses, particularly those that previously fell under exemptions.

Current documentation requirements

Currently, there are four tiers of transfer pricing documentation obligations in the UK, based on a group’s consolidated figures. These include:

• Mandatory documentation for very large groups;
• Standard OECD-aligned record-keeping guidance for large groups;
• Lighter expectations for medium-sized groups; and
• A full exemption for small enterprises.

As it stands now, medium-sized groups aren’t formally required to maintain transfer pricing documentation, although HMRC can request supporting evidence. As a safeguard, many businesses in this category choose to prepare internal policy documents and intra-group agreements, even if these don’t meet formal documentation standards. Such records can help demonstrate adherence to the arm’s length principle and establish good governance.

Medium-sized exemption under review

In the consultation, which closed on 7 July, the Government has proposed removing the exemption for medium-sized groups. This exemption was originally introduced to ease the burden when the UK first legislated for domestic transfer pricing. However, with UK-to-UK transfer pricing now applying to fewer intra-group transactions and the UK increasingly an outlier in offering this relief, the exemption looks set to be withdrawn.

Small enterprises, however, will remain exempt. The Government considered redefining the qualifying criteria, including switching to a single metric or transaction-based test, but has decided to maintain the current definition, simply changing the reference currency from euros to pounds sterling.

In anticipation of the changes, medium-sized groups would be well-advised to prepare policy memos or light-touch benchmarking exercises to support their intra-group pricing. It’s important to distinguish between a benchmarking analysis, based on comparables, and a full economic analysis, which considers the allocation and control of risk and the rationale for the chosen pricing method.

Expectations for large groups

Whilst UK legislation does not currently require large groups to retain Master File and Local File documentation (unless already subject to OECD-aligned rules abroad), HMRC strongly recommends preparing these documents. At a minimum, this should include a functional analysis and an economic analysis to support the transfer pricing applied.

The UK’s mandatory documentation rules for the largest multinationals already align with the OECD’s standardised framework, consisting of the Master File, Local File and Country-by-Country Report. Even where not formally required, maintaining documentation that adheres to these standards is considered best practice and could be critical in the event of an HMRC enquiry.

What could change under new rules

If the proposed changes from the consultation are enacted, transfer pricing documentation obligations in the UK will broaden significantly, especially for medium-sized groups and businesses engaged in cross-border related party transactions.

A major addition to the UK’s reporting landscape is the International Controlled Transactions Schedule (ICTS). Under the proposals, certain UK entities will be required to file detailed information on their cross-border intra-group transactions via this schedule.

Who is exempt from ICTS filing?

Only a limited number of businesses will be excluded from ICTS requirements. Exemptions include:

• Small enterprises (as defined under the revised UK criteria);
• UK entities with no transactions involving non-qualifying territories; and
• UK entities with less than £1 million in aggregate cross-border related party transactions.

What the ICTS may require

The draft ICTS is structured into several parts, starting with threshold-based gateway questions to determine whether an entity needs to complete certain sections. If in scope, businesses must prepare increasingly detailed disclosures across the following sections:

Section A focuses on routine cross-border dealings with related parties. Here, entities must break down each transaction by type, identify the counterparty and their jurisdiction, and include the transaction’s value. Crucially, it also requires disclosure of the transfer pricing method used and the applied profit margin, such as a cost-plus percentage. While some aggregation is permitted, this is limited to transactions that share identical features; transactions involving different methods or parties must be listed separately.

Section B applies to financing transactions and other dealings where either the balance exceeds £5 million or their impact on profit exceeds £100,000. For smaller groups, the threshold rises to £50 million, and for larger groups to £1 million. Additionally, groups must disclose their top five international related-party financing arrangements or loan relationships, regardless of whether they meet the aggregation criteria.

Section C requires contextual information about group structure, industry, and any changes in transfer pricing policy during the reporting period. This section is designed to provide a fuller picture of the commercial and policy backdrop behind the disclosed transactions.

These proposed requirements would represent a step-change in the level of detail UK businesses need to maintain and submit, especially for those previously exempt under the medium-sized group exemption.

Implications of ICTS

Although the ICTS framework remains in draft form, it is highly likely to be implemented in some shape. It represents a significant administrative burden, requiring far more granular and structured data than what most UK groups have previously been required to report. The disclosures would include dealings between UK permanent establishments (PEs) and the rest of the global group, going well beyond the standards of many other jurisdictions.

Importantly, HMRC intends to use the ICTS for automated risk assessment, enabling them to apply data analytics to detect outliers based on industry benchmarks and peer comparisons. This may trigger an increase in targeted transfer pricing investigations.

Compliance and timing

Businesses should ensure that their transfer pricing documentation is refreshed annually. This includes updating comparables in benchmarking reports or conducting a full renewal if significant changes have occurred. HMRC has reaffirmed that documentation must be available within 30 days of a formal request and should ideally be in place before filing a tax return. Failure to comply could lead to penalties and increased scrutiny.

What does this mean for your business?

If your business has previously benefitted from exemptions, it’s time to prepare for a more structured compliance environment. Transitioning to a model of continuous documentation maintenance, rather than periodic updates, can ensure alignment with commercial reality and reduce risk.

The removal of the medium-sized exemption and introduction of the ICTS are clear indicators of HMRC’s strategic direction: wider coverage and deeper data to support enforcement. Whether you’re new to transfer pricing or simply need assurance that your policies hold up under scrutiny, now is the time to take stock and consider whether your documentation and governance processes are future-ready.

How can we help?

Our international tax team have a wealth of experience in assisting multinational companies with their transfer pricing requirements. If you require tailored advice on how these changes could affect your business or have any further enquiries, please get in touch with a member of our International Services team on 01293 227670.