In March 2021, HMRC launched a consultation on transfer pricing documentation. The consultation explored whether the largest businesses with a presence in the UK should be required to maintain, and produce upon request, Master File and Local File documentation per the standardised OECD approach.

As a recap, the Master File provides an overview of a group through a transfer pricing lens and the Local File analyses and explains why the arrangements at an entity level are consistent with the arm’s length standard. This is achieved through a functions, risks and assets analysis, as well as an economic analysis.

The Transfer Pricing Records Regulations 2023 were published on 19 July 2023 and HMRC’s International Manual has also been updated with new guidance at INTM450000 onwards.

From April 2023, the largest businesses will be required to maintain a Master File and Local File, and a supporting Summary Audit Trail (SAT) which is yet to be introduced. The SAT is a new requirement but there is limited detail at the moment as to what information will be required. Although the SAT will not come into force on 1 April 2023, the secondary legislation published by HMRC will provide it with the power to introduce the SAT by way of a published notice. This will allow HMRC to implement the SAT at a later date without the need to make further changes to primary or secondary legislation. 

HMRC has confirmed the 30-day timescale for the provision of the Master File and Local File, following their request by HMRC. The purpose of the Master File and Local File is to support the transfer pricing policies underlying the filed corporate tax return, and therefore they should be prepared in advance of the annual filing. Failure to prepare the Files in advance may lead to penalties.

What are the documentation requirements?

There are effectively four tiers of transfer pricing documentation requirements in the UK. These tiers are dependent upon thresholds which are based on group consolidated figures and are depicted below. The definition of ‘largest’ will align to the CbCR threshold: i.e, multinational groups with annual consolidated revenue in the immediately preceding period of equal to or more than €750 million will be caught by these new requirements.

The documentation requirements for each tier is summarised below:

Illustration summarises the documentation requirements for each tier


Guidance for large businesses

Businesses who are considered large (more than 250 employees or less than 250 employees with both turnover exceeding €50 million and gross assets more than €43 million) should maintain transfer pricing records. The requirements for a Local File are similar to the documentation expectations that HMRC sets out in its current guidance. It would therefore be prudent for large businesses to prepare a transfer pricing report that follows the Local File template irrespective of whether it falls within the April 2023 definition of ‘largest’.

A Master File is only required if overseas jurisdictions in which a group operates have a lower documentation threshold than the UK.

Domestic transactions

UK-UK transactions are not required to be included within the Local File. Instead HMRC expects records of any analysis undertaken to support that self-assessed position and that the analysis will be provided upon request, within the same 30-day time scale as for documentation. 

UK-UK related party transactions therefore remain subject to UK transfer pricing but unless domestic transactions involve a Patent Box claim or are within the Oil and Gas ringfence legislation, they do not need to be documented in the Local File.

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Changes to transfer pricing related records

Changes to HMRC information powers specifically in relation to obtaining transfer pricing related records will also come into force from April 2023. Transfer pricing documents will be able to be requested outside of an enquiry by HMRC, for example as part of a risk review. The requirement for the documents to be in the ‘possession or power’ of the UK entity has also been removed. This means that if a UK company has an overseas parent and that parent holds the documents, the documents can still be requested by HMRC.


Penalties in relation to transfer pricing documentation are derived from the general record-keeping requirements. Two main types of penalties may apply: penalty for failure to keep or produce documentation and a tax-geared penalty for a careless or deliberate error.

The fixed penalty for failure to keep or produce documentation records is currently £3,000. From April 2023, for the largest businesses, failure to do the work necessary to maintain the relevant records or to produce those records on request will lead to the presumption that an inaccuracy is careless. The taxpayer can only displace this presumption by providing the documents and evidencing that the underlying transfer pricing information had been prepared in advance of filing their Corporation Tax return, or otherwise showing that they took reasonable care.

The tax-geared penalty is dependent on whether the inaccuracy is considered:

  • careless (maximum penalty of 30% of potential lost revenue (PLR))
  • deliberate but not concealed (70% of PLR)
  • deliberate and concealed (100% of PLR).

How can we help you?

Every group is unique and faces its own transfer pricing challenges. How we can help you will vary enormously depending on where your organisation is positioned in its business life cycle, your industry and how you have structured your commercial operations. Transfer pricing might be a relatively new requirement, or maybe you simply need reassurance and validation that your policies are compliant and support positive commercial behaviour. 

Get in touch with Kirsty Rockall if you would like to discuss how you can meet your transfer pricing requirements.