2 significant changes in UK Transfer Pricing compliance
UK transfer pricing compliance is entering a major phase of reform. HMRC has completed two important consultations on the UK transfer pricing regime, which will materially change how affected businesses document, disclose, and support cross-border related party transactions from 2027 onwards.
1. Potential future changes to the Small and Medium-sized Enterprises (‘SME’) exemption from transfer pricing
As part of an April 2025 consultation, HMRC sought views on whether to remove the transfer pricing exemption for medium sized enterprises. The exemption for small-sized enterprises would remain in place.
HMRC has confirmed that no immediate changes will be made, and medium-sized enterprises will continue to benefit from the UK transfer pricing exemption. Further technical consultation is expected in Spring 2026 when another review will take place.
2. Introduction of the International Controlled Transactions Schedule (‘ICTS’)
What is the ICTS?
The ICTS is a new, mandatory annual filing requirement that has been introduced for in-scope UK and non-UK businesses engaged in cross border related party transactions. It is designed to provide HMRC with structured, standardised data to allow them to evaluate transfer pricing risk more efficiently.
It is expected to take effect for accounting periods ending on or after 1 January 2027 with initial filings expected to be made alongside the 2028 Corporation Tax return filings. Businesses who fall within the scope of the ICTS must prepare ahead of that date to ensure they meet the strict compliance requirements.
Who will be affected?
Businesses will be required to file the ICTS if they meet both of the following conditions:
- They are within the UK transfer pricing regime, meaning they are not exempt as an SME.
- The business/group has controlled transactions that exceed £1m aggregate value during the relevant accounting period.
Groups falling below the materiality threshold do not have an immediate requirement to file. However it still recommended that preparations are made to align with the compliance requirements if it is expected that the materiality threshold will be breached in the future.
What information will be included in the ICTS?
HMRC released a draft ICTS template following an April 2025 consultation (found here: https://www.gov.uk/government/consultations/transfer-pricing-scope-and-documentation). Based on the draft document provided, taxpayers will need to report the following for each category of controlled transaction:
- Counterparty identity & jurisdiction
- Transfer pricing / valuation methodology
- Profit level indicators
- Percentage markups or profit margins used
- Net book value of relevant assets
- Income and expenditure (reported separately)
- Details of any cost contribution arrangements (CCAs) including buy-ins, buy-outs and balancing payments
This represents a fundamental change from the narrative-based approach used in traditional transfer pricing documentation.
Compliance Considerations
Businesses, especially those operating multiple, separate organisational systems across jurisdictions, will need to consider whether existing internal controls and reporting procedures support the classification of ICTS information.
Multinational groups with decentralised systems may face particular challenges in harmonising data sources and ensuring consistency across jurisdictions.
What businesses should do now?
Although ICTS becomes effective for periods beginning in 2027, businesses should start preparing immediately by:
- Assessing Materiality – Determine whether the group exceeds the £1m cross‑border threshold.
- Adapting internal reporting systems – Identify the types of controlled transactions and assess whether system upgrades are required to capture all key data required for ICTS filing.
- Review transfer pricing methodologies – Ensure the transfer pricing methods applied to each controlled transaction are appropriate, consistent and supported by robust documentation.
- Prepare for increased HMRC scrutiny – Standardised data will allow for HMRC to identify potential issues much earlier and compare taxpayers against other, similar businesses. Any unusual or inconsistent data points will stand out quickly, triggering more targeted enquires because HMRC will already have most of the relevant information to hand.
Contact us
If you would like to discuss how ICTS requirements might apply to your business, or would like advice with preparing for these changes, please reach out to Georges Daubney within our tax team via email georges.daubney@cowgills.co.uk or via the website.
