New Guidance on Transfer Pricing Compliance: Key Takeaways from HMRC's Webinar

On 6 March 2025, HMRC hosted a webinar to discuss its newly published Guidance for Compliance 7 (GFC7), which provides insights into transfer pricing (TP) compliance risk management, documentation best practices, and policy design considerations for UK businesses. GFC7 is intended to help businesses identify common TP risks, improve compliance governance, and ensure consistency across tax filings.

 

Key highlights from the GFC7 guidance

1. Managing compliance risk for UK businesses (part 1)

HMRC highlights that transfer pricing compliance risk can be created where UK businesses are not sufficiently involved, or do not give full consideration to, the upfront planning and scoping of UK transfer pricing compliance work. In this part, HMRC:

• Encourages businesses to regularly review TP policies to ensure they reflect the reality of UK operations and have a proper understanding of the group transfer pricing compliance model and its impact on level of UK assurance.
• Provides UK leadership with tools to assess compliance risks and integrate UK-specific factors into group-wide compliance frameworks, to create awareness of group transfer pricing policies and contractual terms of intra-group agreements and arrangements that apply to UK businesses.
• Emphasizes the importance of internal involvement in compliance processes, particularly for UK entities within multinational groups, building in implementation and monitoring checks to financial processes upfront.

2. Common compliance risks (part 2)

HMRC frequently encounters transfer pricing documentation, which is too high level, insufficiently evidenced or for which functional analysis is not two-sided in nature. To prevent this, in part 2 of its guidance, HMRC:

• Identifies recurring transfer pricing risks, such as reliance on offshore documentation teams without UK-specific oversight.
• Highlights the importance of maintaining supporting documentation that demonstrates adherence to the arm’s length principle (ALP) and accurate delineation of transactions, which involves consideration of contractual terms, contemporaneous functional analysis, character of the property or service, economic circumstances and business strategies.
• Reinforces that HMRC will scrutinize selective application of TP policies or inconsistencies across different tax filings.

3. Indicators of TP policy design risk (part 3)

HMRC’s states that compliance risk is often created by setting transfer pricing policies which appear high level and insufficiently supported by analysis, or which do not adequately reflect the facts and circumstances of the UK business. Part 3 aims to allow specialists to identify common risk indicators of policy design which may feature in their arrangements. This includes:

• List of key red flags that could trigger increased HMRC scrutiny. Common indicators of high-risk approaches to policy design include areas like policy setting approaches, intangible assets ownership and exploitation, above market intra-group services, cost-based reward for services, franchise fees and similar single fee arrangements.
• Implementation of governance controls to ensure TP policies remain consistent over time.
• Document how TP policies are developed, applied, and reviewed to mitigate compliance risks.

 

New Requirement: UK Transfer Pricing Risk Lead

One of the most significant updates in GFC7 is the expectation that businesses assign a UK Transfer Pricing Risk Lead (TPRL).

This does not require the creation of a new position, but rather the designation of a UK-based employee, ideally from tax or finance, who has a deep understanding of the company’s TP arrangements. This individual will be responsible for:

• Ensuring that UK-specific TP risks are properly assessed and managed.
• Acting as a key liaison with HMRC on TP matters.
• Overseeing the accuracy of UK TP documentation, particularly where offshore teams are involved.

HMRC has indicated that businesses relying heavily on external advisors or offshore documentation teams face increased risks of errors and omissions in their TP filings. The UK risk lead should help bridge this gap by ensuring that UK-specific functions, assets, and risks are accurately reflected.

Additionally, businesses should consider how to document the appointment of a TP risk lead, ensuring that the rationale for their selection is clear. While this is not a legal requirement, it is considered best practice to maintain records of the designation process.

 

Transfer Pricing Documentation & Compliance Expectations

With regards to UK TP documentation, The Transfer Pricing Regulations 2023, published in July 2023, specify which entities within the charge to UK tax are legally required to keep transfer pricing records and the nature of those records. HMRC’s International Manual (INTM450000) provides additional guidance on compliance expectations.

Businesses must also ensure that their supporting information files are maintained in a way that demonstrates reasonable care and compliance. Well-documented supporting evidence can help address HMRC concerns proactively, reducing the risk of prolonged inquiries and litigation.

 

What should businesses do next

Given HMRC’s evolving approach to transfer pricing risk management, UK businesses should take proactive steps to ensure compliance and mitigate potential risks, in particular:

• Review existing TP policies to identify potential risk areas, inconsistencies, or gaps in compliance with HMRC’s latest guidance.
• Appoint a UK-based TP risk lead to oversee compliance, liaise with HMRC and ensure that UK-specific risks are properly managed.
• Ensure robust documentation that aligns with The Transfer Pricing Regulations 2023 and GFC7 best practices. This includes maintaining contemporaneous comparability analyses and supporting evidence to demonstrate compliance with the arm’s-length principle.
• HMRC has indicated that it will cross-check transfer pricing documentation with other tax filings, such as R&D claims. Businesses should review their submissions to ensure consistency across different areas of tax compliance.
• Monitor developments in HMRC’s TP approach to stay ahead of compliance expectations.

Our transfer pricing team is available to assist businesses in navigating this guidance, assessing risk exposure, and implementing best practices for TP compliance. Please contact us to discuss how we can support your compliance efforts and minimise potential risks.