Introduction
The UK has reformed transfer pricing rules under Part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA10) to reduce compliance burdens on domestic transactions. A significant UK-to-UK exemption now exists for many related-party exchanges between UK companies, effective for chargeable periods beginning on or after 1 January 2026. (gov.uk)
What’s Changed
- UK-to-UK provisions are exempt from transfer pricing rules under TIOPA10/S164A if certain qualifying criteria are met. This means many domestic transactions no longer need the same arm’s length adjustments as cross-border ones. (gov.uk)
- Reforms also updated participation and valuation rules for cross-border intangible transactions (effective 1 January 2026). For intangible asset transfers or licences, arm’s length pricing applies; for other cases, market value is used. (gov.uk)
Qualifying for the UK-to-UK Exemption
To fall into the exemption, all the following must apply during the relevant period:
- Both the potentially advantaged company and the other party are UK-resident companies throughout the period.
- The provision influences profits or losses for both entities, and any profits are subject to UK corporation tax—on the same rate for both.
- The entities use same reference currency in accounting (normally their functional currency).
(gov.uk)
Disqualifying factors include:
- Inclusion of contract types specified under CTA09/S589 for only one entity
- Exemption adjustments regarding foreign permanent establishments
- Patent Box provisions or excluded companies
- If either party elects out or HMRC issues a mandatory transfer pricing notice due to potential UK tax loss.
(gov.uk)
What Corporates Should Do Now
- Review existing inter-company transactions to determine if they meet qualifying criteria to claim the exemption
- Consider making an election to apply transfer pricing rules even when exempt, especially if future reorganisations might invalidate the exemption
- Maintain detailed documentation to prove qualifying status (UK residency, same tax rates, currency).
- For intangible transactions, assess whether arm’s length valuation or market value is needed depending on the nature of the transaction.
- Regularly check updates to HMRC internal manuals like INTM414020 and INTM414320.
Example
Company A and Company B are UK resident, taxed at the same corporation tax rate, and transact goods where both recognise profits in their financials using GBP. This transaction could fall under the UK-to-UK exemption. However, if Company B holds a foreign branch with different tax treatment or currency, the exemption might not apply.
Impact and Risks
Impact:
- Reduced compliance costs for wholly domestic corporations
- Easier budgeting and transfer pricing disclosure burdens lowered for many UK-only relationships
Risks:
- Misapplying the exemption if any criterion is missed—including subtle ones like currency or tax rate differences
- If HMRC issues a notice, you may need to revert to full TP rules
- Poor documentation could lead to disputes or adjustments in tax assessments
Summary
As of 1 January 2026, UK-to-UK transfer pricing reforms offer meaningful relief for many domestic related-party transactions—but the exemption is conditional. Corporates should audit their group structure, align valuation practices, and ensure documentation lines up with qualifying criteria to make the most of the opportunity.