Are your transfer pricing policies and documentation ready for HMRC scrutiny?

31 January 2025 / Insight posted in Articles

Transfer pricing (TP) is an essential part of tax compliance for any UK business engaged in transactions with connected parties. Whether your company is a UK member of a multi-national group with global revenues exceeding €750 million or a smaller UK entity conducting intercompany transactions, ensuring that TP policies adhere to arm’s-length principles is critical for managing tax risks and avoiding penalties. Here, we summarise what UK companies need to know in 2025.

Understanding the UK TP policies

The UK TP policies require that intercompany transactions between connected parties be priced as if they were conducted between independent entities – this is known as the arm’s-length principle.

While UK entities that are part of a small and medium-sized consolidated group (known as small and medium-sized entities – SMEs) are currently generally exempt from TP rules, entities that are part of larger groups and certain medium-sized companies (e.g., those transacting with entities in non-qualifying territories) must comply. Even for SMEs otherwise exempt from TP in the UK, maintaining defensible pricing policies is best practice to manage risk and support compliance across all jurisdictions.

Documentation requirements for large groups

From accounting periods starting on or after 1 April 2023, UK members (regardless of size) of multi-national groups with global revenues exceeding €750 million must prepare and maintain (or have access to) documentation in the OECD prescribed format:

  • a master file providing an overview of the group’s global operations and TP policies;
  • a local file detailing specific intercompany transactions undertaken by the UK entity.

Failure to maintain and provide this documentation upon HMRC’s request can result in penalties of up to £3,000, plus additional penalties if a tax shortfall is identified.

Why TP policies still matter for smaller groups

Even if your group’s global revenues do not exceed €750 million, the UK TP rules may still apply. HMRC expects all UK entities within the scope of TP, whether formally required to maintain master and local files or not, to ensure their intercompany transactions reflect arm’s-length pricing and maintain records to evidence this. Non-compliance can lead to:

  • HMRC scrutiny and audits, particularly for cross-border transactions;
  • tax adjustments and penalties if intercompany pricing is deemed inappropriate;
  • lost tax-saving opportunities, as a well-documented TP policy can uncover areas for optimisation.

How Moore Kingston Smith can help

Our TP team, in collaboration with TP colleagues in the Moore Global network, provides tailored solutions for businesses of all sizes, including:

  • For members of large multi-national groups: full preparation of master and local files to meet UK documentation requirements.
  • For smaller groups: policy reviews, benchmarking and documentation support to ensure compliance with arm’s-length principles.
  • TP health checks: identify potential risks and opportunities for tax optimisation.

Contact us today for a free initial consultation. Whether you need help navigating the documentation rules or ensuring compliance with arm’s-length pricing, our experts are here to assist.

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