Proposed changes to UK Transfer Pricing scope and documentation: insights from HMRC’s April 2025 consultation
On 28th April 2025, HM Revenue & Customs (HMRC) published a consultation document titled “Transfer Pricing – Scope and Documentation,” outlining significant reforms to the UK’s transfer pricing regime. Running until 7th July 2025, the consultation proposes changes to better safeguard the UK tax base while reducing administrative burdens. Key reforms include extending transfer pricing obligations to medium-sized enterprises (MEs) and removing requirements for purely domestic (UK to UK) transactions. These changes aim to align the UK with international standards, such as OECD guidelines, while adapting to a post-EU exit landscape.
The Importance of Transfer Pricing
Transfer pricing is critical for multinational enterprises to ensure arm’s-length transactions between related parties, preventing profit shifting and ensuring tax compliance. Robust transfer pricing documentation reduces the risk of audits, penalties, and double taxation, while supporting strategic tax planning.
Proposed changes for Medium-Sized entities
The consultation proposes eliminating the current transfer pricing exemption for medium-sized enterprises, defined as those with up to 250 employees, turnover below €50 million, and a balance sheet total below €43 million, aggregated with linked enterprises. This change targets cross-border profit diversion risks, as HMRC believes MEs have the capacity to comply, especially those already adhering to transfer pricing rules in other jurisdictions.
To mitigate the impact, the exemption for small enterprises will remain, potentially with UK-specific thresholds of £10 million for turnover and balance sheet total, which could exclude some smaller MEs. HMRC plans to provide enhanced guidance to ease compliance, expecting minimal ongoing costs for MEs, primarily related to documenting cross-border transactions. The proposed International Controlled Transactions Schedule (ICTS) will further standardize reporting for such transactions. Implementation is expected post-consultation, likely announced in a future fiscal event, with one-off familiarization costs for affected businesses.
Removal of UK-to-UK Transfer Pricing requirements
The consultation also proposes repealing transfer pricing requirements for transactions between UK-resident entities. This reform, detailed in a related technical consultation, focuses on cross-border risks where profit shifting is a greater concern. The change responds to the UK’s EU exit, which originally necessitated domestic transfer pricing rules to support the SME exemption. By removing this requirement, HMRC aims to simplify compliance, particularly for MEs facing new obligations. Exceptions involving non-qualifying territories are under review, with implementation timelines to be confirmed post-consultation.
Update on HMRC’s April 2025 Transfer Pricing consultation
As of 3rd September 2025, there has been no official government response or final outcome published for the HMRC consultation document “Transfer Pricing – Scope and Documentation,” which closed on 7th July 2025. The consultation sought stakeholder views on key reforms, including the removal of the transfer pricing exemption for medium-sized enterprises (MEs) and the introduction of an International Controlled Transactions Schedule (ICTS) for reporting cross-border related-party transactions. It also ties into a parallel technical consultation on broader reforms, such as repealing domestic (UK-to-UK) transfer pricing requirements where no tax advantage exists.
Current status and expected timeline
- No formal response yet: HMRC and the UK government have not released a summary of consultation responses or confirmed legislative changes. The official GOV.UK consultation page remains unchanged since its launch on 28th April 2025, with no updates post-July. This aligns with typical HMRC processes, where analysis of responses can take several months before publication.
- Anticipated next steps: Based on prior consultations (e.g., the 2023 transfer pricing reforms), the government is expected to publish a response document and draft legislation for inclusion in the Finance Bill 2025-26. Legislation, if proceeding, could take effect for fiscal years beginning as early as 2026-27, though exact timings remain unconfirmed.
Implications for businesses
While awaiting official confirmation, businesses, particularly MEs with cross-border transactions, should proactively review their transfer pricing policies. The proposed removal of the ME exemption (currently covering entities with up to 250 employees, €50 million turnover, and €43 million balance sheet total) would mandate arm’s-length pricing and documentation for international dealings.
The ICTS, if implemented, would apply to entities with over £1 million in aggregate cross-border related-party transactions, excluding UK-to-UK deals and those under Advance Pricing Agreements.
The parallel reforms, including the domestic exemption, are broadly welcomed for reducing burdens. HMRC’s focus remains on protecting the tax base.
What next?
In the interim, conduct a transfer pricing health check to assess exposure, especially if your group may newly fall into scope. For expert support on preparing documentation or navigating these changes, Gravita provides specialized UK transfer pricing services.
Please contact Fiona Cross, Corporate and International Tax Partner, to discuss how we can help safeguard your transfer pricing compliance and optimize your strategy.
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