UK transfer pricing reform 2025: a new era of transparency and compliance

The UK government is embarking on a significant overhaul of its transfer pricing (TP) framework, marking the most substantial reform since 2004. These changes were announced on 28 April 2025 and are currently under consultation. They aim to align the UK more closely with international standards, enhance HMRC’s ability to detect and address profit shifting and reduce unnecessary compliance for low-risk domestic transactions.

Key measures:

• Removal of the SME exemption for medium-sized enterprises in the UK
• Repeal of UK-UK transfer pricing rules
• Introduction of new reporting requirements for cross-border transactions – the International Controlled Transactions Schedules (ICTS)

As part of the ongoing consultation process, S&W attended HMRC’s live consultation event on 22 May 2025 in Parliament Street, London. The session provided valuable insights into the rationale behind the proposed reforms and offered a platform for direct engagement with policymakers. Below we discuss the potential impact on businesses going forward.

One of the most impactful proposals is the removal of the TP exemption for medium-sized enterprises. Historically, these businesses were not required to apply arm’s-length pricing to cross-border related-party transactions. Under the new regime, only small enterprises will retain this exemption.

The removal of the longstanding SME exemption may raise concerns about increased compliance costs, however HMRC maintains that the impact will be limited. HMRC’s reasoning? Many of these businesses are already subject to TP rules in the jurisdictions they trade with, meaning the adjustment may be more administrative than operational.

This move also aligns the UK with international norms. Currently, the UK is one of the few countries still offering such an exemption - something HMRC sees as increasingly out of step with global standards. To balance the scales, HMRC is also proposing to remove the requirement to apply TP rules to transactions between UK entities. If implemented, this could help offset the additional burden for affected businesses.

This remains to be seen. However, we recommend that medium-sized businesses who previously benefitted from the SME exemption should start to consider whether they have appropriate transfer pricing documentation in place. This is to demonstrate to HMRC that their cross-border transactions comply with the arm’s length standard. 

Continuing with the government’s drive to modernise the UK’s TP framework, HMRC is proposing a new reporting requirement: the International Controlled Transactions Schedule (ICTS). If introduced, this could significantly reshape compliance expectations - especially for medium-sized enterprises that now fall within the expanded scope of TP rules.

While the UK has historically lagged behind its G20 peers in collecting detailed TP data, this reform aims to close that gap. Most major economies already require similar disclosures and HMRC is keen to bring the UK in line. It’s also clear that HMRC has struggled to gather reliable TP data through existing channels. The ICTS is expected to change that,providing the tax authority with more targeted insights and enabling more effective enquiries.

A key question remains: what will TP documentation look like for businesses that are in scope, but not classified as ‘large’ (i.e. with global turnover under €750 million)? HMRC’s current stance is clear:

• All international businesses should maintain TP documentation
• Documentation should be proportionate to the size and complexity of the business
• The master file/local file approach remains the gold standard

HMRC hasn’t confirmed a go-live date, but it’s clear the government is committed to these measures. Timelines are likely to follow once the consultation concludes, and feedback is reviewed.

Businesses should begin reviewing how they collect and manage internal data to ensure readiness for the upcoming reporting requirements. It’s also worth considering whether existing transfer pricing documentation, such as a master file and local file, could support compliance. Having this documentation in place may streamline the process and reduce the burden of meeting the new obligations.

If you would like to discuss how any of the above could impact your business, please do get in touch with your usual S&W contact or the contacts listed. 

Approval code: NTEH7062523