What is UK transfer pricing?
UK transfer pricing refers to the rules that require transactions between connected parties to be priced as if they were between independent entities. Connected parties typically include a UK subsidiary and its overseas parent company, or any companies under common control. This ensures the UK subsidiary reports the appropriate level of taxable profits to HMRC.
What are the UK transfer pricing rules for subsidiary companies?
The UK operates a self-assessment regime, meaning companies must ensure their related-party transactions follow the arm’s length principle.
An example of the arm’s length principle could be thought of as: “What would we have charged if this wasn’t a company in our own group?”.
If prices are not set correctly, adjustments must be made in the tax return to reflect the correct taxable profits.
Do UK transfer pricing exemptions apply to small and medium-sized subsidiaries?
There is currently an exemption for companies that fall within the definition of “Small” or “Medium”. However, HMRC may remove exemptions in certain cases, particularly where transactions involve related parties in low-tax jurisdictions or where a direction to apply transfer pricing is issued.
What documentation is required for UK transfer pricing compliance?
Companies must keep documentation showing how transfer prices were determined, the method used, details of intra-group transactions, and evidence supporting arm’s length pricing. HMRC may request this information as part of a review.
When should you seek advice from a UK transfer pricing specialist?
Advice is recommended when setting up a UK subsidiary, planning intra-group service arrangements, or determining how connected-party charges should be priced. Professional support can help ensure transactions follow the arm’s length principle and that the necessary documentation is in place for HMRC.
