UK Transfer Pricing – Updated Draft Legislation

On 19 July 2023, HMRC published the Transfer Pricing Records Regulations 2023, setting out specific requirements for the largest businesses to have UK transfer pricing (’TP’) documentation in line with the format and content requirements set out in Chapter V of the OECD TP Guidelines. These regulations apply for corporation tax accounting periods from 1 April 2023 and income tax from 2024-25.

However, and perhaps more importantly for most businesses with a UK presence, HMRC published in September 2024 extensive guidance (GfC7) outlining best practice compliance for TP and HMRC expectations including documentation. This extensive guidance applies to all UK businesses falling within the UK’s TP rules.

In addition, on 28 April 2025, HMRC published a technical consultation proposing several statutory TP-related changes. The outcome of this consultation was published in November 2026 with the Autumn Budget.

This extensive recent activity highlights HMRC’s ever increasing focus on TP compliance and enforcement, reflecting a global trend towards greater tax transparency and risk management around TP.

With new and onerous reporting requirements coming soon following the technical consultation outcome publication and November 2025 budget, including the International Controlled Transaction Schedule (’ICTS’) and integration of Diverted Profits Tax (’DPT’) into corporation tax, UK businesses face increased compliance obligations and scrutiny. It is important that they now have robust, up-to-date TP policies fully backed by evidence-based documentation. Proactive compliance and clear documentation based on evidence are essential to managing risks effectively and aligning with evolving UK and OECD standards.

TP documentation and reporting requirements

What is required to be prepared and retained in relation to UK TP compliance differs according to size and counterparty territory. The UK’s TP documentation and associated reporting requirements apply firstly per tier. The thresholds for each tier are largely determined based on group consolidated figures, including linked and/or partnership enterprises.

TP documentation needs to be prepared and maintained on a contemporaneous basis, with the filing of tax return annually. Additionally, benchmarking searches for comparable companies should be updated annually, with fresh searches conducted every three years.

TP documentation and reporting requirements per tier are summarised in the document you can download below:

The International Controlled Transaction Schedule (ICTS) Scope

The ICTS schedule, which will be an annual filling requirement submitted with the annual tax return, will include a breakdown of related party transactions by transaction type and value, the TP method applied, and the percentage applied under the TP method.

It is an automated data-lead risk assessment tool for HMRC and will be used to better prequalify cases for audit. The ICTS will be requirement for businesses with relevant cross-border related-party transactions, including:

• UK entities within the scope of Part 4 TIOPA;
• UK PEs of non-resident entities; and
• UK entities with foreign PEs.

Specific exemptions (including SME considerations), thresholds, and aggregation rules will be set out in secondary legislation following technical consultation in 2026. HMRC has indicated that the design will aim to align with international norms and minimise additional administrative burden.

The government envisages that UK PEs of non-resident entities should disclose both:

• transactions between the non-resident entity and associated entities, where those transactions are attributable to the UK PE; and
• ‘dealings’ between the PE and other parts of the non-resident entity.

Thresholds

It is proposed that businesses will not be required to complete the ICTS where both of the following criteria are met:

• there are no transactions with non-qualifying territories; and
• the aggregated total value of transactions by individual entity with qualifying territories is below £1 million.

Aggregation

It is envisaged that transactions will be aggregated and suggested factors include transaction type, counterparty identity, counterparty jurisdiction of residency/PE, TP or valuation method, profit level indicator, and percentage (where applicable).

Netting of income and expenditure in a category will not be allowed and the figures in the ICTS should tie to the financial statements, subject to any adjustment for arm’s length pricing under TP principles.

It is intended that transactions would not need to be disclosed where the total value of the category (aggregated as above) is less than a de minimis of £100,000.

What’s next?

HMRC technical consultation was open until 7 July 2025, inviting feedback from stakeholders. Following this consultation, the Finance Bill 2025–26 was introduced in Parliament on 4 December 2025, confirming enabling legislation for key measures, including:

• Integration of DPT into Corporation Tax via the new Unassessed Transfer Pricing Profits (‘UTPP’) regime;
• Updates to the participation condition, UK–UK transfer pricing exemption, and intangibles valuation rules;
• Alignment of UK permanent establishment rules with the 2017 OECD Model Tax Convention; and
• Power for HMRC to introduce the ICTS through secondary regulations.

Most transfer pricing and PE reforms will apply from Royal Assent of Finance Bill 2025–26 (expected mid-2026).

For the ICTS, a further technical consultation on draft regulations is expected in spring 2026, to finalise the detailed design (scope, thresholds, exemptions, reporting format). The ICTS requirement is expected to apply for accounting periods beginning on or after 1 January 2027.

Our recommendations

In light of HMRC’s evolving expectations and the increasing focus on UK TP obligations, we recommend that all businesses take a proactive approach now to their TP compliance. If you haven’t reviewed your TP policy and its application recently, we recommend a refresh to ensure everything remains up to date and effective, especially ahead of the effective date of the ICTS.

Would you like to know more?

If you would like to discuss any of the above and how it impacts you, please speak to your usual Blick Rothenberg contact, or Susan Vincent using the form below.