UK will maintain its transfer pricing exemption for SMEs while introducing new reporting rules for multinationals from 2027.
The UK government will maintain its current transfer pricing exemption for small and medium-sized enterprises (SMEs), while moving ahead with plans to introduce a new International Controlled Transactions Schedule (ICTS) for multinational groups.
This announcement was made on 26 November 2025.
The transfer pricing rules, based on the internationally recognised arm’s length principle and aligned with the OECD’s Transfer Pricing Guidelines 2022, are set out in Part 4 of the Taxation (International and Other Provisions) Act 2010. A government consultation on widening the scope of the legislation and introducing new reporting obligations ran from 28 April to 7 July 2025.
SME exemption retained
The consultation examined whether medium-sized enterprises should be brought into scope of the UK’s transfer pricing regime. Respondents were split: some supported the change for consistency with international norms, while others warned it would impose a significant compliance burden for limited tax risk.
After reviewing the feedback, the government confirmed that SMEs will continue to benefit from the existing exemption. Ministers said the move aligns with the UK’s Industrial Strategy and avoids placing “additional administrative burdens” on growing businesses. Officials will continue to monitor tax risk and keep the policy under review.
Respondents strongly supported retaining the exemption for small enterprises, using turnover, balance sheet total, and headcount as qualifying metrics. Many backed expressing thresholds in GBP rather than EUR, with some suggesting inflation-linked adjustments. The government has decided not to amend the thresholds at this stage. There was also broad support for requiring enterprises to exceed thresholds for two consecutive periods before losing exemption, providing businesses with greater certainty.
New multinational reporting rules from 2027
The ICTS will require multinational enterprises to report information on cross-border related-party transactions to HMRC. Primary legislation will be included in the Finance Bill 2025–26, with technical consultation on secondary legislation set for spring 2026. The schedule is expected to apply for accounting periods beginning on or after 1 January 2027.
Respondents generally recognised the ICTS as a tool to support HMRC’s data-driven risk assessment, improve targeting of enquiries, and reduce the length of transfer pricing audits. However, many warned of potential administrative burdens, especially for smaller groups with limited specialist resources. Clear guidance and a proportionate design were repeatedly emphasised as essential.
Concerns were also raised about the lack of an internationally standardised reporting format, which could increase the burden for global businesses, and calls were made for exemptions for groups already filing extensive documentation, such as Country-by-Country Reports.
Consultation feedback
The government held three public meetings involving over 150 people and received 31 written responses from businesses, representative bodies, and agents. Officials said the responses provided “useful and constructive” feedback, helping HMRC understand stakeholders’ views and concerns.
The majority of respondents strongly supported maintaining the exemption for small enterprises. They argued that transfer pricing compliance could create a disproportionate administrative and financial burden, given small firms’ limited cross-border activity and resources. Many noted that SMEs often lack in-house expertise to maintain transfer pricing documentation and would have to rely on costly external advice.
Earlier, the UK’s tax authority, His Majesty’s Revenue and Customs (HMRC) launched consultations seeking public input on potential updates to the UK’s transfer pricing framework, permanent establishment rules and the diverted profits tax on 28 April 2025.
