Budget 2025 Features Transfer Pricing Measures
UK Chancellor of the Exchequer Rachel Reeves delivered Budget 2025 to Parliament on 26 November 2025. As expected, the budget package included several transfer pricing announcements related to the two transfer pricing consultations that ran in June 2025, one on legislative updates and another discussing future changes to documentation.
International Controlled Transactions Summary
UK taxpayers within the scope of the transfer pricing rules will need to complete a new form, the “International Controlled Transactions Summary” (ICTS) to show their transactions with overseas related parties. This has been expected since the consultation launched, and the budget announcement makes it a certainty and provides a launch date. The new ICTS requirement will apply to periods commending on or after 1 January 2027. This should give taxpayers enough time to prepare and to introduce the systems and processes necessary to handle ICTS filings.
A consultation in the spring of 2026 will focus on the content and form of the ICTS. Interestingly, ICTS is expected to generate increased tax collections from better-targeted enquiries, the main aim of the legislation, and from changing behaviours. The initiative is expected to raise an additional GBP 105 million in 2027-2028, and up to an extra GBP 350 million in 2030-2031.
Small and Medium-Sized Enterprises (SMEs)
The summer 2025 consultation addressed the possibility of restricting the current exemption for SMEs to cover only small businesses. This potential change has now been ruled out, removing a potential compliance headache for some smaller international groups. The government has accepted that the exemption remains a helpful administrative benefit for start-ups, worth the potential tax at stake.
Changes to Transfer Pricing Legislation
Transfer pricing legislation is being updated with effect from 1 January 2026, with changes expected in all areas covered in the previous consultations:
- The scope of transfer pricing will be slightly widened to include parties under coordinated management, along with greater powers for HMRC to direct that transfer pricing should apply
- UK-UK transfer pricing will be formally exempt, with a number of carveouts such as for REITs and banks, or when certain tax rules like the patent box are employed
- The rules on financing will be adapted with a change to the treatment of guarantees and the broad “acting together” rule being reined in. Broader relief will be available to reallocate “excess” borrowing costs in certain cases.
Various tweaks and adjustments have been made to the legislation from the consultation draft, but no wholesale changes. A point that remains an area of concern is the potential complexity of changes relating to foreign exchange movements on related-party loans.
For more information on the budget, please visit BDO UK’s dedicated page at Autumn Budget 2025 | Expert analysis - BDO.
Paul Daly
BDO in United Kingdom