Kirk Rice Blog

Transfer Pricing: UK Subsidiary CompaniesWritten on July 22, 2025 by Kirk Rice LLP

In this article, we consider how transfer pricing rules can affect UK subsidiary companies of overseas groups.

In the UK there are rules that govern how transactions between connected parties should be priced for tax purposes and aim to ensure that intra-group transactions are conducted at arm’s length, as if they were between independent entities.

The UK has comprehensive transfer pricing legislation that applies to transactions between connected parties. Recent developments include proposals to modify exemptions for small and medium-sized enterprises and introduce new documentation requirements for large multinational groups

Record keeping requirements of transfer pricing for UK Subsidiary Companies

For accounting periods beginning on or after 1 April 2023, the UK has introduced new transfer pricing documentation requirements for large multinational businesses (MNE) operating in the UK. These businesses whose turnover at the worldwide group level exceeds 750 million Euros must keep and preserve a master file and a local file in a prescribed and standardised format, as set out in the OECD’s Transfer Pricing Guidelines. The guideline also sets out details of what is required for each file and these files should be reviewed and updated annually to confirm that they are still accurate.

The different types of transfer pricing methodologies

There are several different types of transfer pricing methodologies that can be accepted, and the most appropriate method to use should be determined by reference to the type of transaction being considered. Documentation must be retained to support the level of charge made in the company’s accounts and tax return in case of HMRC.

When incorporating a subsidiary in the UK, it is necessary to consider the nature of the services that will be provided both by and to that company and how these services should be charged. Typically, this includes administrative services between the companies, intra-group financing and stock transfers.

Transfer pricing regulations

The UK has a self-assessment regime, where the onus is on the taxpayer to ensure that transfer pricing regulations are adhered to. Where it has been determined that certain related party transactions have not been reflected on an arms-length basis in the accounts, it is necessary to make an adjustment in the tax return where the result would have been otherwise an understated level of chargeable profits.

There is currently an exemption from transfer pricing rules for companies that fall within the definition of “Small” or “Medium”. The definitions of these are as follows:

• Small: less than 50 employees, and either turnover or gross assets not exceeding €10 million
• Medium: less than 250 employees and either turnover not exceeding €50 million or gross assets of less than €43 million.

HMRC and transfer pricing

However, it is important to be aware that HMRC has the power to direct a medium-sized company to apply transfer pricing in certain cases. Additionally, small and medium-sized enterprises can be subject to similar rules to transfer pricing where they transact with related parties from low tax jurisdictions.

Finally, it should be noted that, even in the case of small and medium-sized companies, HMRC can deny a corporation tax deduction for a charge where they believe that the main motive for incurring the charge was to reduce tax and it has not been incurred wholly and exclusively for the purpose of the company’s trade.

In summary, given the wide-ranging nature of transfer pricing rules, we recommend that this area be considered early when commencing activities in the UK. A detailed review must be carried out so that the most appropriate level of charges are applied, and the company remains compliant with the rules but also pays the correct level of corporation tax overall.

If you would like to discuss the implications of transfer pricing for UK subsidiaries of overseas groups or you might have, or any accounting assistance required email info@kirkrice.co.uk or call (0)208 789 8588.

Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.