Transfer Pricing guide: UK
Read below for more detailed information on transfer pricing regulations, document requirements, and other considerations for the UK, as well as recent industry hot topics and key developments in the country's business landscape.
Page updated 1st July 2025
Transfer Pricing regulations
Is the jurisdiction part of OECD/G20 Inclusive Framework on BEPS?
Yes.
Relevant Transfer Pricing regulation
Part 4 of Taxation (International and Other Provisions) Act 2010 and HMRC International Manual.
Is this regulation aligned with the OECD Guidelines
Yes.
Transfer Pricing documentation requirements
Documentation Threshold for Preparation of Local File/ TP Documentation
The UK has an exemption for Small Medium Enterprise (SME) enterprises at the group level. A Local File is mandatory where group revenue exceeds EUR 750m and is strongly expected by HMRC for companies below the EUR 750m threshold, but above the SME threshold.
Documentation Threshold for Preparation of Master File
The UK has an exemption for Small Medium Enterprise (SME) enterprises. A master File is mandatory where revenue exceeds EUR 750m and is best practice for enterprises below the EUR 750m threshold, but above the SME threshold.
Documentation Threshold for Preparation of Country by Country Report
Group consolidated revenue over EUR 750m.
Submission of Local File, Master File, and CbC Report Required? If so, when?
Transfer Pricing Local file and Master file must be provided to HMRC on request. The deadline for submission of the CbCR report is 12 months after the end of the accounting period to which the report relates.
If No Submission Required, any Other Deadline?
Transfer Pricing Local file and Master file should be prepared before the Corporation Tax Return is submitted. The deadline for submission of the Corporation Tax Return is 12 months after the end of the accounting period to which the return relates.
Other Documentation Requirements
None.
Does TP documentation / Local file Need to be Prepared Contemporaneously with Tax Return Filing (i.e., before filing the return)?
Yes,the deadline for submission of the Corporation Tax Return is 12 months after the end of the accounting period.
Transfer Pricing Specific Returns
Preparation of TP Return Required?
Not applicable to UK.
Deadline for TP Return Filing
Not applicable to UK.
Key information to be included in the TP Return
Not applicable to UK.
Benchmarking - Local Tax Authority Preferences
Local vs Regional Comparables Set
HMRC accepts regional comparables.
Single-Year vs Multi-Year Analysis
HMRC generally expects single year results for the tested party to be compared to the multi-year comparable data.
Public vs Private Comparables
Not applicable to UK.
Interquartile Range or Full Range
OECD interquartile range is accepted by HMRC.
Transaction-Based or Aggregate Approach, or Both
Not applicable to UK.
How Often are Benchmarking Sets Renewed (financial update versus full scope BMS preparation)
In line with OECD guidelines, a fresh search must be performed every 3 years (if no change in the facts) and a financial update of accepted comparables must be undertaken every year for 2 subsequent years.
TP Penalties
In Case of Delayed Submission of Documentation
There is a penalty regime in UK law that applies in cases, including for late tax returns, incorrect tax returns and late payment of tax, and for failure to prepare and maintain adequate records.
In case of Income Adjustments in Course of a Tax audit
Penalties can be assessed for transfer pricing adjustments. It is currently HMRC’s practice to consider penalties for any transfer pricing adjustment that results in increased taxable profits in the UK, with the level of penalty reflecting the facts and circumstances of the case.
Other Considerations
APA & MAP Availability
Bilateral and multilateral APA opportunities are available. Unilateral APAs remain available but in very limited circumstances. A MAP request can be made when a taxpayer considers that the actions of one or both contracting states’ tax authorities result, or may result, in taxation not in accordance with the relevant double taxation agreement (DTA).
Applicability of Safe Harbour Rules
Not applicable to UK.
Critical Transfer Pricing Issues Prevailing in the Jurisdiction, if any
In practice, situations in which there is material activity in the UK but the returns are low, where intellectual property is kept offshore with material, base-eroding payments and financial transactions are likely subject to greater scrutiny.
Criteria/ Guidelines for Transfer Pricing Audit/ Assessments by Tax Authority
HMRC takes a risk-based approach to tax audits.
Relevant Regulations and Rulings with Respect to Thin Capitalisation or Debt Capacity in the Jurisdiction
The UK’s thin-capitalisation rules are based on the arm’s-length principle, and there are no safe harbors. Advanced Thin Capitalisation Agreements (ATCAs) may be used to get clearance for financial transactions.
As per paragraph 21 of Schedule 18 to Finance Act 1998, multinational companies are required to keep and retain sufficient records to demonstrate that the tax figures are complete and accurate, including in respect of any figures affected by transfer pricing rules.
Recent Updates
While these requirements have been in place before, revisions have been made to paragraph 21 of Schedule 18 to Finance Act 1998 (on 11.7.2023) which enable regulations to specify certain transfer pricing records which must be kept and preserved to show intercompany transactions are at arm’s length.
The Transfer Pricing Records Regulations 2023 which have come into force on 9th August 2023, specify the form in which specific information relating to transfer pricing is required to be kept. The new rules bring the UK TP documentation requirements in line with the OECD model for documentation.
New TP Documentation Requirements
The new TP documentation requirements come into force for accounting periods on or after 1 April 2023 and require the “in-scope” UK entities to keep and preserve, in accordance with the OECD 2022 Guidelines: a Group Master file and UK Local file.
UK entities are in scope of the new rules if they are part of the “MNE Group” with global consolidated turnover greater than EUR 750 million in a given financial year.
With the new TP documentation regulations, HMRC has reversed the burden of proof onto taxpayers to evidence that reasonable care has been undertaken in relation to the preparation of the specific TP records. As well as reasonable case in the preparation of documentation, this extends and applies across the end-to-end management of TP including policy design and implementation of such policies. Failure to provide reasonable care was taken could result in penalties including tax geared penalties applied to any tax adjustment, as well as potential extension of stature of limitations (from 4 to 6 years). There has also been a change in HMRC’s information powers, such that the relevant transfer pricing documents can be requested out an enquiry, as well as the ability to obtain UK TP documentation when they are in the “possession of power” if another person within the Group.
HMRC’s Transfer Pricing Guidance for Compliance (“TP GfC”)
Alongside the new rules, HMRC have also recently released transfer pricing Guidance for Compliance (“TP GfC”) which outline HMRC’s expectations and what they consider best practice compliance in terms of the analysis performed, evidence gathered and the resulting contents of the documentation. The TP GfC are aimed at all businesses that must apply transfer pricing.
TP GfC notes that for a UK company with a turnover of more than £200million, there is a statutory obligation for the Senior Accounting Officer (SAO) to make sure that the company establishes and maintains appropriate tax accounting arrangements, including for transfer pricing.
The TP GfC also state that transfer pricing is cyclical in nature, and the appropriateness of the existing transfer pricing arrangements and its implementation needs to be analysed and documented annually along with supporting evidence, before or on the date of filing the tax return.
In the TP GfC, HMRC have noted that where a UK entity does not meet the CbCR threshold, an appropriate way to demonstrate that provisions between related parties adhere to the arm’s length principle is to prepare documentation in line with the OECD’s recommended approach.
Recommended Steps for TP Compliance in the UK
The new rules and guidance have been introduced amid an increasingly challenging tax environment in the UK; at the moment, the UK faces a highly active and focussed tax and TP audit environment which entails lengthy, evidence- based audits, increased scrutiny and rigorous application of penalties.
Whilst there is no definitive minimum standard or threshold to achieve penalty protection in the UK, merely having documentation in place does not guarantee a conclusion of reasonable care. For context, to show that reasonable care has been taken, a taxpayer needs to showcase the following:
The analysis done to determine an accurate TP policy – this will likely include the work agreed with and performed by internal/external TP specialists;
The work done to ensure that application of the TP policy on a year-on-year basis was correct – will include evidence such as fact validation calls with the business, how frequently these were done, etc;
The TP policy has been implemented accurately and correctly during the year – includes steps taken to ensure the implementation was accurate and correct during the year and evidence of the steps taken such as emails, policy papers, etc.
There is no system for annual tax audits, as HMRC takes a risk-based approach to tax audits. The possibility that transfer pricing will be reviewed as part of a wider audit will depend on the facts and circumstances of the entity under audit —for example the level of intercompany transactions (and/or PE profit attribution), appropriateness of transfer pricing methodology applied and level of documentation. Most multinational companies will have transfer pricing considered as part of their overall risk assessment, but only those seen as high risk in this area will typically then be subjected to a transfer pricing focused audit.
Companies with low- or no-tax entities in their supply chain may find themselves within the diverted profits tax (DPT) regime and, for which, there will be a requirement to notify. DPT is currently levied at 31% rather than the CT rate of 25% (prior to 1 April 2023, DPT was levied at 25% and the CT rate was 19%).
HMRC launched a Profit Diversion Compliance Facility (PDCF) in 2019, under which companies may elect to use the PDCF, and come forward with detailed analysis to support a position or arrive at an adjustment. HMRC is increasingly using the PDCF as a tool to conduct the equivalent of taxpayer-led audits, freeing up HMRC resources to initiate coverage across more taxpayers.
APA Availability
Bilateral APA opportunities are available, including now for financial transactions, and there has been an increase in acceptance into the program. There are complexity thresholds to be satisfied to gain admission to the program, but HMRC also considers whether double taxation is likely without an APA and whether it is worthwhile to admit an APA to the program.
There is no automatic admission or fees. HMRC has stated in its Statement of Practice a strong preference for bilateral and multilateral APAs, although unilateral APAs remain potentially available but in very limited circumstances.
MAP Availability
A MAP request can be made when a taxpayer considers that the actions of one or both contracting states’ tax authorities result, or may result, in taxation not in accordance with the relevant double taxation agreement (DTA). A number of the UK’s DTAs also include arbitration provision as such a MAP case may progress to arbitration in such cases. It should be noted that from January 2021 the UK is no longer covered by the EU Arbitration Convention and no new tax dispute resolution cases may be presented to HMRC under this Convention.
Transfer Pricing Documentation Threshold
SME Exemption
There is an exemption from the application of transfer pricing rules for small- and medium-sized enterprises (SMEs).
For the calculation of profits, the legislation provides an exemption from transfer pricing documentation rules for transactions carried out by a business that is a small- or medium-sized enterprise. However, the exemption only applies to transactions with territories for which there is a full non-discrimination article in the relevant treaty. What constitutes an SME for this purpose is a modification of the European recommendation (2003/361/ EC).
An entity qualifies as either small- or medium-sized if it meets the staff headcount ceiling for that class (i.e., 50 or 250, for small- or medium-sized, respectively) and one (or both) of either the annual turnover limit or the balance sheet total limit. The annual turnover limit for small enterprises is GBP10 million; for medium-sized entities, it is GBP50 million. The balance sheet limit is GBP10 million for small-sized enterprises and GBP 43 million for medium-sized enterprises. Reference is to the characteristics of the whole group of associated enterprises, and not the UK entity on its own, to determine whether the SME exemption applies.
Enterprises meeting the CbCR threshold
The following "relevant person" are required to prepare TP records:
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The company that satisfies the MNE group test
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The partners of the partnership that satisfies the MNE group test
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The trustees of the trust that satisfies the MNE group test
The relevant persons that are members of an MNE group that meets the CbCR threshold (‘the MNE group test’) are required to prepare and maintain (i.e. annually update) a Master file and UK Local file for accounting periods beginning on or after 1 April 2023.
The UK follows the OECD threshold limit of EUR 750 million for the CbCR threshold.
HMRC considers that a de minimis threshold of £1 million can be applied to each category of transactions. Where the aggregate value of the transactions within a category is no more than £1 million, those transactions do not need to be reported in the Local File.
Large entities below the CbCR threshold
For those not obliged to keep and preserve a Master File and Local File in accordance with the OECD 2022 Guidelines (i.e. groups that exceed the SME exemption but do not have revenues over EUR 750m), HMRC is of the view that these guidelines represent best practice as the standard approach for preparing documentation to demonstrate that provisions between related parties adhere to the arm’s-length principle. It is expected by HMRC that these companies would prepare transfer pricing documentation annually.
Country by Country Reporting Legislation
The UK rules use many terms and definitions that are taken from the OECD guidanceand that guidance should be checked when completing a CbC report.
The UK follows the OECD threshold limit of EUR 750 million for the CbCR threshold.
The deadline for submission of the CbCR report is 12 months after the end of the accounting period to which the report relates.
Until 26 July 2023, UPEs and UKEs were required to notify HMRC in advance for each period covered by a CbC report (including where exceptions to the filing obligation applied). This requirement was removed by the The Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) (Amendment) Regulations 2023 (legislation.gov.uk).
Country by Country Reporting Penalties
There is a penalty of GBP 300 plus GBP 60 per day for non-filing of CbCR after notification of failure to file by HMRC. If no CbCR is filed after the MNE has been notified of the failure, HMRC may apply to the tax tribunal to give an order for an increased daily penalty, which can be up to GBP1,000 per day.
The penalty for filing inaccurate or incomplete CbCR information when due to careless or negligent behaviour is up to GBP3,000 per day.
