Transfer pricing might not be the most glamorous topic in the world of tax, but right now, it’s one of the most important.
At its core, transfer pricing is about how transactions are priced between companies within the same group, especially across borders. That could be anything from goods and services to intellectual property or financing.
The key principle?
Those transactions must be priced as if they were happening between independent parties, what’s known as the “arm’s length” principle.
Simple in theory. Much more complex in practice.
And for UK businesses that are part of international groups, getting transfer pricing right has never been more critical.
WHY TRANSFER PRICING MATTERS MORE THAN EVER
The UK has introduced substantial reforms through Finance Bill 2025–26, with changes generally applying from 1 January this year. These represent the most significant update to UK transfer pricing rules in over a decade.
At the same time, HMRC activity in this space is ramping up:
- Transfer pricing tax yield has jumped from £1.78bn (2023/24) to £3.39bn (2024/25)
- The average time to settle enquiries has increased to 41 months (yes, over three years!)
So this isn’t just a compliance exercise anymore; it’s a strategic risk area that can tie up time, resource, and cash for years if not handled properly.
Which brings us to the three magic numbers every business needs to understand.
250 – EMPLOYEE THRESHOLD
If your company is part of a global group with 250 or more employees (FTEs), you’re no longer considered an SME for UK transfer pricing purposes.
That means:
- You must apply full UK transfer pricing rules
- You can’t rely on SME exemptions
- You need robust documentation to support your related party transactions
However, and this is the bit that often gets missed. 250 employees isn’t the whole story.
While it’s the “magic number” for many businesses, having fewer than 250 employees doesn’t automatically mean you qualify as an SME. To meet the SME definition, you also need to pass at least one of the following financial thresholds:
- Turnover below £50m; or
- Balance sheet total assets below £43m
So, if your business has fewer than 250 employees but exceeds both of these financial limits, you won’t qualify as an SME for transfer pricing purposes. It’s rare, but it does happen, particularly in asset-heavy or high-revenue businesses.
We’re seeing many UK businesses caught off guard here, especially those in growing or international groups where there isn’t always clear visibility over group-wide data. It’s easy to assume you’re under the threshold… until you’re not.
Ask yourself:
Do we fall within UK transfer pricing rules, and if so, do we have the right documentation in place?
7 – GFC7: IT’S NO LONGER “HEAD OFFICE SAID SO”
Under HMRC’s Guidelines for Compliance (GfC7), there’s a clear message: UK businesses need to own their transfer pricing position.
Gone are the days where UK entities could simply adopt group policies directed from Group teams without question.
In reality, within many groups, transfer pricing arrangements are documented in a variety of ways:
- Formal group transfer pricing policies
- Intra-group contracts
- Informal written arrangements
And here’s where risk creeps in.
Where these arrangements are set or controlled outside of the UK, there’s a real danger that the UK entity is simply following along, without fully understanding how those policies apply locally and whether they align with the functional activities of the UK company.
HMRC is increasingly focused on this.
They expect:
- Clear UK involvement in shaping and applying policies
- UK companies to have a proper understanding of how their intercompany transactions work in practice
- Evidence that arrangements reflect an appropriate consideration of UK activities, assets, and risks
Best practice?
UK risk leads should be actively reviewing documented transfer pricing policies and the terms governing transactions, and sense-checking them with the people who actually run the business day-to-day.
Because if your operational teams don’t recognise what’s written in your transfer pricing policy, that’s a problem.
Consideration point:
Do we truly understand our transfer pricing position, or are we just following the group?
27 – ICTS: THE DATA IS COMING (FROM 2027)
From 1 January 2027, businesses will need to report overseas related-party transactions to HMRC on an annual basis, through the new International Controlled Transactions Summary (ICTS).
This is a gamechanger.
It means:
- HMRC will have structured, consistent data on your cross-border transactions
- Risk assessment will become faster and more targeted
- Inconsistencies will be much easier to spot
In other words, transparency is increasing, and so is scrutiny.
I’ve previously shared the ins and outs of what ICTS means for your business in an earlier article, so if you’re looking for a deeper dive into the detail, it’s well worth a read.
Ask yourself:
Do we know what data we’ll need, and how we’re going to collect it?
SO… WHAT SHOULD YOU DO NEXT?
This isn’t about panic, it’s about preparation.
Here’s where to start:
✔️ Assess
- Are you within the scope of UK transfer pricing rules?
- Do you have appropriate, up-to-date documentation?
✔️ Review (GfC7)
- Does your UK team understand and influence Group transfer pricing policies that impact on the UK?
- Are there gaps or risks in your current approach?
✔️ Plan ahead (ICTS)
- What information will you need to report from 2027?
- Do your systems and processes capture it today?
MY REFLECTIONS FROM WHAT WE’RE SEEING ON THE GROUND
Transfer pricing is no longer something you can “set and forget”.
With increased HMRC scrutiny, longer enquiry timelines, and major regulatory changes on the horizon, the cost of getting it wrong, both financially and operationally, is only going one way.
The good news? With the right approach, it’s also an opportunity to bring clarity, consistency, and confidence to your international operations.
If you’re unsure where you stand or just want a sense check on your current approach, our Transfer Pricing team at Cooper Parry is here to help.
No scare tactics. Just a practical conversation about what matters for your business.
Get in touch with the team or me to start the conversation.
