Service

Transfer pricing and intercompany agreements for UK subsidiaries

Every pound that moves between the UK company and its parent needs a written agreement and a price HMRC will accept as arm’s length. Small and medium groups are exempt from the formal rules — but not from the principle.

From £1,200for intercompany agreement and benchmarking note · full documentation quoted

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UK transfer pricing legislation applies to large groups: 250 or more employees, or over €50m turnover and €43m balance sheet, measured across the worldwide group. Below that, the SME exemption removes the documentation requirement — but HMRC can still disallow deductions for intercompany charges that are not at arm’s length, and undocumented management charges are the first thing disallowed in an enquiry. Larger groups must keep a master file and local file and may need to report under country-by-country rules.

Most subsidiaries we set up are service companies — sales, support, development — remunerated by the parent on a cost-plus basis, typically 5–10%. We draft the intercompany services agreement before the first invoice, set the mark-up with a short benchmarking note, and make sure the monthly intercompany invoice, the VAT treatment and the corporation tax computation all agree.

Interest on intercompany loans, royalties for IP and management charges each carry their own withholding, VAT and thin-capitalisation points; we set them out in plain English so your group tax adviser can sign them off.

What’s included

Intercompany services agreement (cost-plus, distribution or agency)
Mark-up benchmarking note
Intercompany loan agreement and interest withholding advice
Monthly intercompany invoicing and reconciliation
Transfer pricing review for the CT600
Master file and local file where the group is above the SME limits (quoted)

How it works

What happens, in order

Map the flows

What the UK company does for the group, what it is paid, and how.

Agree and document

Agreement drafted, mark-up set, both sides sign before the first invoice.

Run and review

Invoices raised monthly; the position is reviewed each year end and when the business changes.

When you need this

Who this is for

Every subsidiary that is paid by its parent, charged by its parent, or lends to or borrows from it. Especially US, Indian and German groups whose home tax authorities audit the other side of the same transaction.

Common questions

Does transfer pricing apply to small groups in the UK?

The formal documentation rules do not apply below the SME thresholds, but HMRC can still challenge non-arm’s-length pricing under general principles. A written agreement and a sensible mark-up are cheap insurance.

What mark-up should a UK service subsidiary charge?

Commonly 5–10% on costs for routine services, supported by a short benchmarking note. Higher-value functions justify more.

Is UK withholding tax due on management charges?

No. Withholding applies to interest and royalties (20% unless a treaty rate is claimed), not to service fees.

Is VAT charged on intercompany services?

Services supplied to an overseas parent are generally outside the scope of UK VAT under the place-of-supply rules; the parent may need to reverse-charge locally. We confirm for each flow.