As Manchester and Liverpool businesses increasingly open overseas offices, set up international subsidiaries, or trade more heavily with group companies abroad, many are unknowingly walking into transfer pricing territory – a compliance area that HMRC is scrutinising with growing intensity.

What transfer pricing actually means

Transfer pricing governs how a group of companies under common ownership prices the goods, services, loans, and intangible assets – such as brand names or know-how – that move between its own entities across different countries. When a UK parent company sells stock to an overseas subsidiary, licenses out a trademark, provides management services to a foreign branch, or lends money cross-border within the group, that transaction still needs a price attached, even though the business is, in effect, trading with itself.

HMRC – and tax authorities internationally – require that price to reflect what unrelated, independent businesses would agree in the same circumstances. This is known as the arm’s length principle, and it exists to stop group structures being used to shift profit into lower-tax jurisdictions at the expense of the UK’s tax base.

This isn’t a matter of guidance or best practice alone – it’s set out in law. The UK’s general transfer pricing rules, in Part 4 of the Taxation (International and Other Provisions) Act 2010, require connected-party transactions to be priced as if the parties were acting independently, and adopt the OECD’s Transfer Pricing Guidelines as the standard for applying that principle.

For most growing businesses, this is a compliance and documentation requirement that kicks in the moment a company opens an overseas branch, establishes a foreign subsidiary, or starts transacting meaningfully with a related entity abroad.

How many UK businesses does this actually affect

Transfer pricing is often assumed to be a large-multinational problem, but the scope is considerably wider. HMRC estimates that approximately 75,000 UK businesses fall within scope of transfer pricing, permanent establishment, and foreign permanent establishment legislation, ahead of the introduction of a new International Controlled Transactions Schedule that in-scope groups will be required to file with HMRC (gov.uk).

HMRC’s enforcement activity has also intensified markedly. In the 2024-25 tax year, HMRC’s transfer pricing yield – income generated through enquiries, Advance Pricing Agreements, Advance Thin Capitalisation Agreements and Mutual Agreement Procedure cases – almost doubled to £3,387 million, up from £1,786 million the year before. The same figures show 143 enquiry cases settled during the year, up from 128, though average settlement time has stretched to 41 months as cases become more complex, and HMRC now has a team of nearly 400 full-time-equivalent staff dedicated to international tax issues, including transfer pricing (gov.uk).

It’s a consistent trajectory: more resource, higher yield, longer enquiries. For growing businesses expanding abroad for the first time, that makes early, proper documentation considerably cheaper than an enquiry several years down the line. For groups already within scope and needing to know specifically what HMRC expects in terms of documentation, our guide to master file and local file requirements sets out what’s required and the penalties for getting it wrong.

A well-known illustration of the risk

One of the most widely reported UK cases involved a major US-headquartered coffee chain. In 2012 it emerged that despite UK sales of around £398 million in 2011 – comparable in scale to its nearest UK-listed competitor that year – the company had paid almost no UK corporation tax across most of its 14 years trading in Britain. The UK business paid royalties to another group company for use of the brand, bought coffee beans through a Swiss group entity that were then roasted in the Netherlands, and paid interest on intra-group loans used to fund the UK operation. Each of those payments moved profit out of the UK, even though the UK arm was commercially profitable and described as such to investors.

HMRC opened an inquiry into the arrangements, and while they were not found unlawful, the resulting reputational fallout led the company to voluntarily pay additional UK tax. The case is a useful illustration precisely because the mechanisms involved — royalty payments, intercompany procurement, and intra-group lending — are the same ordinary tools a growing North West business might use entirely legitimately when expanding overseas. The difference lies in whether the pricing is properly benchmarked and documented from the outset.

Where growing businesses typically tip into transfer pricing without realising it

The classic trigger points include:

  • Setting up a first overseas sales office or branch
  • Centralising a head-office function – IT, marketing, or management – that then recharges costs to foreign offices
  • Intercompany loans used to fund overseas expansion
  • Licensing UK-developed brand names, software, or intellectual property to an overseas entity

None of these are unusual steps for an ambitious business to take. The risk isn’t the activity itself, but proceeding without pricing it on an arm’s length basis or keeping documentation to justify that pricing if HMRC – or an overseas tax authority – asks.

The wider advisory needs that come with transfer pricing

In practice, transfer pricing rarely arrives as an isolated issue. It tends to be the point at which a business first needs a broader range of cross-border advisory support, including:

  • Transfer pricing documentation and benchmarking – comparable company analysis to justify intercompany pricing and meet HMRC’s documentation expectations
  • Advance Pricing Agreement support – negotiating certainty with HMRC upfront, rather than facing a retrospective enquiry later
  • Double tax treaty and relief advice – to avoid the same profit being taxed in two countries
  • Group and corporate structuring advice – as overseas entities are added, the wider group structure often needs revisiting
  • Permanent establishment risk reviews – assessing whether overseas activity has inadvertently created a taxable presence abroad
  • VAT and customs advice – intercompany goods movements typically raise parallel VAT and duty questions
  • Overseas statutory audit and compliance support – once a foreign subsidiary exists, local filing obligations follow
  • Cross-border payroll and employment tax advice – where staff are seconded or working across jurisdictions

For a business expanding overseas for the first time, transfer pricing is often the first sign that its advisory needs have outgrown a purely domestic-facing accountancy relationship.

Getting ahead of the risk

Businesses across Manchester and Liverpool considering their first overseas office, subsidiary, or intercompany arrangement should treat transfer pricing as a planning question from the outset, not a retrospective fix. With HMRC’s documentation requirements tightening and enquiry timelines lengthening, the businesses in the strongest position are those that price intercompany transactions properly and keep the supporting evidence from day one.

This is often where having genuine reach into the overseas jurisdiction itself matters -not just UK-based advice about it. As a member of UHY, a network with 340 business centres in 95 countries, UHY Williamson Croft can call on local expertise in the specific countries where a client’s overseas operations actually sit, rather than relying solely on a UK-based view of a foreign tax position.

If your business is expanding overseas, or already trading with related entities abroad, it’s worth reviewing your transfer pricing position before HMRC does it for you. Contact Daniel Moon below, or get in touch with our team to discuss your circumstances.