HMRC's 2024–25 annual statistics, published on March 11, 2026, delivered a striking headline: transfer pricing yield nearly doubled to £3,387 million from £1,786 million in the prior year. With approximately 400 full-time equivalent staff dedicated to TP enforcement and a £13.8 billion pipeline of international tax under consideration, the message to multinationals is unmistakable, the UK is in an era of hyper-active enforcement.
The proposed UK reforms, effective January 1, 2026 for most provisions, represent the most significant overhaul of UK transfer pricing compliance rules since 2004 replacing the Diverted Profits Tax with a new "Unassessed Transfer Pricing Profits" (UTPP) regime charged at 31%.
The End of the SME Exemption
On April 28, 2025, HMRC launched a sweeping consultation. The flagship change is the removal of the TP exemption for medium-sized enterprises a long-standing safe harbour that kept many growing businesses out of the formal TP compliance regime. Under the proposals, the exemption will be narrowed to apply only to "small enterprises," with revised thresholds. This means thousands of mid-market groups with cross-border activity will need to implement arm's length pricing policies and contemporaneous documentation for the first time.
The International Controlled Transactions Schedule (ICTS)
All UK companies and permanent establishments outside the small enterprise definition will be required to file an ICTS if aggregate cross-border related-party transactions exceed £1 million. The schedule requires detailed disclosure by transaction type, counterparty, and TP method (de minimis £100k), plus loan data for balances above £5 million, and binary risk-flag questions to assist HMRC's risk-based triage.
Diverted Profits Tax Replaced
The Diverted Profits Tax, introduced in 2015 at a punitive 25% rate, will be repealed and absorbed into UK corporation tax as the Unassessed Transfer Pricing Profits (UTPP) regime applicable to accounting periods commencing on or after January 1, 2026. DPT notifications received by HMRC surged from 16 to 42 in 2024–25, reflecting heightened enforcement in the final year of the DPT regime. Notably, the new UTPP rate of 31% is higher than the standard UK corporation tax rate of 25%, preserving the deterrent effect.
