If you sell goods or services to related companies overseas, transfer pricing should be on your 2026 to-do list. Transfer pricing is the way you set prices for cross-border transactions between connected parties – for example, a UK company selling stock to its EU distribution subsidiary or charging a US group company for management support.
With UK total exports reaching around £927bn in the 12 months to September 2025, up just over 5% on the previous year, more businesses are affected by cross-border tax rules than ever before (Office for National Statistics (ONS), 2025). At the same time, HMRC is tightening transfer pricing legislation and adding new reporting tools to profile multinationals.
In this article, we explain how transfer pricing works for UK exporters, what has changed with the Autumn Budget 2025, and the practical steps you can take now. Our aim is to help you reduce tax exposure, avoid disputes and support smoother cashflow across your group.
What transfer pricing means for UK exporters
Transfer pricing is based on the “arm’s length” principle – related parties should trade as if they were independent. The UK rules follow the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines, updated to include new guidance on financial transactions and “Amount B” for routine marketing and distribution functions (OECD, 2024).
For exporters, typical controlled transactions include the following.
- Goods sales: Selling finished goods from a UK manufacturer to an overseas distributor.
- Services: Charging group companies for technical support, logistics, research and development (R&D), or management services.
- Intangibles: Licensing brands, software or patents from the UK to overseas operations.
- Financing: Intercompany loans, guarantees or cash pooling arrangements.
If prices are not arm’s length, HMRC can adjust your UK taxable profits. Foreign tax authorities can also make their own adjustments, which creates real double taxation risk unless you secure a corresponding adjustment.
For UK businesses trading with multiple group entities, transfer pricing is not only a tax rule. It affects reported margins, profit allocations by territory and the way you explain your international results to lenders and investors.
Key changes UK exporters need to know
Autumn Budget 2025 confirmed significant reform of the UK’s transfer pricing rules and related regimes, with legislation applying for chargeable periods beginning on or after 1 January 2026 (HMRC, 2025). Here are some key points for exporters.
- Closer alignment with OECD guidance: UK law will explicitly signpost which OECD materials can be used to interpret transfer pricing rules, giving more certainty when you apply the arm’s length principle.
- UK-to-UK transfer pricing: The reforms clarify when UK-to-UK transactions are within scope, but also introduce exemptions where there is no risk of UK tax loss. This matters if you have several UK entities in your export chain.
- Intangibles and financial transactions: HMRC is updating legislation covering pricing of intangibles and intra-group funding. Exporters using valuable brands or group funding should expect more focus on these areas.
- Diverted profits tax repeal: A new corporation tax charge on unassessed transfer pricing profits will replace diverted profits tax while keeping many of its practical features (HMRC, 2025). This keeps pressure on arrangements seen as shifting profits out of the UK.
Alongside these reforms, the government has confirmed that small and medium-sized enterprises (SMEs) will continue to benefit from the existing transfer pricing exemption (HMRC, 2025). However, medium-sized exporters still need to consider transfer pricing when dealing with higher-risk territories or when HMRC believes the exemption has been misapplied.
Transfer pricing methods UK exporters typically use
Most UK exporters rely on a small set of standard methods. Choosing the right one depends on data availability, the functions and risks in each entity, and the type of transaction.
Common options include the following.
- Comparable uncontrolled price (CUP): Comparing your price for goods or services with similar transactions between independent parties. For example, if you sell the same product to third-party distributors, you can benchmark prices charged to your related distributor.
- Resale price method: Starting with the resale price to independent customers and working backwards to leave the distributor with an appropriate gross margin. This is often used where an overseas company buys stock from the UK and mainly performs routine distribution functions.
- Cost plus method: Marking up appropriate production or service costs so the supplier earns an arm’s length profit. This works well for contract manufacturers or shared service centres that have limited risk.
- Transactional net margin method (TNMM): Testing the net margin of the tested party – often the simpler entity, such as a limited-risk distributor – against comparable companies.
- Profit split method: Allocating combined profits from integrated activities between group entities, based on their relative contributions. This may be relevant where valuable intangibles are contributed from several territories.
For many exporters, a combination of methods is used – for example, CUP where good third-party comparables exist, with TNMM as a cross-check. The important point is that your chosen transfer pricing method is documented, consistently applied and supported by robust data.
Documentation and HMRC expectations
HMRC already expects larger groups to prepare transfer pricing documentation in line with OECD standards. The government’s consultation on “Transfer pricing – scope and documentation” confirms that documentation must be proportionate but sufficient to support efficient, targeted compliance activity.
For UK exporters, practical expectations include the following.
- Master file: Group-wide information on legal structure, key intangibles, financing and global transfer pricing policies.
- Local file: UK-focused detail on material cross-border transactions, including functional analysis, method selection and financial testing.
- Supporting evidence: Intercompany agreements, benchmarking studies, board papers and working papers showing how you calculated prices and margins.
Budget 2025 also introduces an international controlled transactions schedule (ICTS) – an annual filing that will require in-scope multinationals to report standardised data on cross-border related party transactions for accounting periods beginning on or after 1 January 2027. Although this sits slightly ahead in the timeline, exporters should design their 2025/26 documentation so it can feed easily into future ICTS reporting.
Even if you benefit from the SME exemption, HMRC can still adjust profits where it considers prices to be outside arm’s length. Keeping a proportionate record – for example, a short functional analysis and basic benchmarking – is a sensible way to manage risk.
Practical steps to manage transfer pricing risk
If you are exporting to the EU, the US or other markets, a structured approach makes transfer pricing more manageable. We usually recommend the following.
- Map your group structure: List all entities, their activities and the main cross-border flows. Focus on where value is created, not just where invoices are raised.
- Identify controlled transactions: Capture significant flows of goods, services, royalties and interest. Pay attention to loss-making companies and low-tax territories – these will be natural HMRC focus areas.
- Assess functions and risks: Document which entity owns key intangibles, which one takes inventory and credit risk, and who controls strategic decisions. This underpins your choice of transfer pricing method.
- Select and apply methods: Choose the most appropriate method for each category of transaction and apply it consistently. Where possible, use external benchmarks rather than internal judgment alone.
- Refresh intercompany agreements: Make sure contracts match what happens in practice. Update pricing terms, responsibilities and risk allocations so they align with your transfer pricing policy.
- Test results annually: Compare actual margins with your benchmarks. If profit levels sit outside the arm’s length range, consider year-end adjustments or document why the result is still acceptable.
If your group is growing or entering new markets, you may also want to explore advance pricing agreements (APAs) with HMRC for higher-risk flows. APAs are not right for everyone, but they can provide long-term certainty for large recurring transactions.
Getting transfer pricing ready for your export plans
Exporting offers growth, but it also increases scrutiny. With HMRC tightening transfer pricing rules, introducing ICTS reporting and aligning more closely with OECD guidance, UK exporters need to make sure their pricing and documentation can stand up to questions.
We suggest three practical next steps.
- Review your current policy: Check whether your existing transfer pricing reflects the 2025 reforms and your real commercial arrangements.
- Tidy your documentation: Bring your files up to OECD standard and think ahead to how ICTS will use your data.
- Get tailored advice: Consider a focused review before a large contract, a new territory or refinancing.
If you trade with Europe or other overseas markets and want to bring your transfer pricing up to date, we can help. You can read more about our services speak directly to our international tax team, or contact us to arrange a review of your transfer pricing for your next export contract.