The last 12 months have brought some of the most significant updates to UK corporate tax legislation in nearly a decade. With global tax reforms under the OECD’s Pillar Two framework, domestic rule changes, and increasing HMRC compliance pressure, companies operating in or from the UK must rethink how they structure transactions, record intercompany activities, and plan tax strategy.
This guide breaks down the critical changes affecting corporate tax and transfer pricing in 2024–25 and what accountants, CFOs, and business owners should be doing right now.
1. The OECD Pillar Two Rules Are Now Live: A New Era for Multinationals
The UK has fully implemented key parts of Pillar Two, including the Income Inclusion Rule (IIR) and the Under-Taxed Profits Rule (UTPR). These aim to ensure all multinational groups with annual revenues above €750 million pay a minimum effective tax rate of 15% worldwide.
1.1 Income Inclusion Rule (IIR)
Already operational, this rule ensures that if a subsidiary in any jurisdiction pays an effective tax rate below 15%, the parent entity (if UK-based) pays a top-up tax.
Impact
- Large groups must evaluate effective tax rates across all subsidiaries.
- Transfer pricing adjustments earlier considered benign may now trigger top-up taxes.
- CFOs need to align their global structures to avoid low-tax outcomes.
1.2 Under-Taxed Profits Rule (UTPR)
Effective from January 2025, this rule allows countries (including the UK) to impose a top-up tax where the IIR cannot fully apply — usually because the parent company is in a non-implementing jurisdiction.
Impact
- Even foreign-parented groups operating in the UK can face UK top-up taxes.
- Loss-making entities or intangible-heavy subsidiaries may attract scrutiny.
- Multinational groups must re-evaluate profit allocation and intercompany pricing.
❗ Why accountants must pay attention
Pillar Two is documentation-heavy. It requires real-time data on:
- Effective tax rates
- Deferred tax assets
- Substance tests
- Intercompany flows
- Jurisdictional tax outcomes
Accountants should start building systems for:
- Global tax reconciliations
- Pillar Two compliance reports
- Intercompany pricing alignment
This is especially crucial for UK companies with subsidiaries in the UAE, Singapore, Ireland, Hong Kong, and other lower-tax regions.
2. New Transfer Pricing Documentation Requirements
From 2024–25, UK entities that are part of a multinational group must maintain documentation in line with OECD standards.
Mandatory documents:
- Local File – entity-specific transactions
- Master File – group-wide structure, strategy, financing
- CbCR (where applicable)
While these requirements existed informally earlier, HMRC has made them statutory with penalty exposure for non-compliance.
2.1 Master File
Must include:
- Global organisational structure
- Intangibles strategy
- Intercompany financing structure
- Supply chain and value creation narratives
2.2 Local File
Must include:
- Characterisation of UK entity
- Detailed benchmarking studies
- Intercompany agreements
- Financial analysis
- Evidence of economic substance
2.3 Penalties
HMRC is now actively issuing penalties for:
- Absence of documentation
- Poor-quality benchmarking
- Late or incomplete submissions
- Incorrect disclosures in CT600 returns
3. Intangibles Regime Reform: New Rules for IP-Heavy Companies
The UK has updated several rules relating to intangible assets including software, patents, trademarks, goodwill, and R&D-generated IP.
Key changes:
- Alignment with Pillar Two
Tax relief will be more closely aligned to “economic substance” and UK-based R&D activity. - Changes to amortisation deductions
Certain acquired intangible assets now have revised amortisation and deduction rules. - Restrictions where intangibles are held in low-tax jurisdictions
Royalty and cost-sharing arrangements face tougher scrutiny.
Impact
- Technology, SaaS, pharmaceuticals, engineering, and digital-media businesses are most affected.
- Companies with IP parked offshore (e.g., Ireland, Netherlands, Singapore) may lose tax efficiency.
4. Multinational Recharges & Intra-Group Service Fees Under HMRC Lens
HMRC’s recent compliance focus has shifted heavily toward management recharge models and intra-group fees.
Common issues HMRC is targeting:
- “Cost-plus” mark-up models without substance
- Group management fees charged without evidence
- Royalties for IP not actually used in the UK entity
- HQ charges exceeding economic benefit
- Operating companies bearing disproportionate losses
What accountants must do:
- Ensure intercompany agreements exist and match actual conduct
- Document the benefit test for service fees
- Benchmark service charge mark-ups
- Maintain proof of IP use where royalty fees exist
Failure to demonstrate economic substance is one of HMRC’s biggest triggers for enquiries.
5. Corporate Loss Relief & Group Relief Changes
Reforms in 2024–25 tighten how group relief and carried-forward losses are used.
Highlights:
- Stricter limits on offsetting brought-forward losses when calculating minimum tax under Pillar Two
- Seven-year look-back periods for some loss relief claims
- Additional disclosures in CT600 for loss utilisation
Impact:
- Groups with historical tax losses must reassess utilisation forecasts
- Inaccurate loss mapping may trigger top-up taxes
6. HMRC Compliance Activity Has Intensified in 2025
HMRC is aggressively closing the “tax gap”, focusing on:
- Large Business audits
- R&D claims
- Transfer pricing documentation
- VAT on cross-border supplies
- Employment taxation (PAYE/NIC)
- Cryptoasset and digital-income disclosures
This means:
- More enquiries
- Longer HMRC response cycles
- Higher penalties for inaccuracies
7. Practical Action Plan for Businesses & Accountants (2024–25)
This section gives actionable steps you can share with clients or implement internally.
7.1 Reassess Global Structures for Pillar Two Compliance
- Map effective tax rates across jurisdictions
- Identify subsidiaries below 15%
- Model top-up tax exposure
- Review intercompany arrangements affecting profitability
7.2 Prepare Mandatory Transfer Pricing Documentation
- Prepare a UK Local File (annual)
- Update Master File (group)
- Maintain benchmarking studies
- Review intercompany agreements
- Align disclosures with CT600 return
7.3 Tighten Intra-Group Charging Mechanisms
- Document management service benefits
- Ensure mark-ups match industry comparables
- Re-price royalty agreements where needed
- Maintain contemporaneous evidence
7.4 Revisit IP Holding Structures
- Review whether offshore IP structures still make sense
- Model UK top-up tax under Pillar Two
- Reassess cost-sharing models and historic arrangements
7.5 Improve R&D & Intangible Documentation
- Link R&D claims to UK-based economic activity
- Maintain project-level documentation
- Separate genuine innovation from routine maintenance costs
7.6 Train Internal Teams & Update Systems
Tax teams, accountants, and outsourced finance partners must be trained on:
- Pillar Two modelling
- Transfer pricing documentation
- R&D rules
- Capital allowances
Cross-border VAT
8. What This Means for UK Accountants & Outsourced Finance Providers
More advisory demand
Businesses need help with:
- Global effective tax rate modelling
- Intercompany tax risk reviews
- TP documentation
- R&D alignment
- IP tax strategy
Growing outsourcing opportunity
UK firms are increasingly outsourcing:
- TP documentation
- Global tax reconciliations
- R&D technical writing
- Payroll and compliance
- Monthly management accounting
This opens the door for outsourcing (including offshore service providers) to step in with cost-effective expertise.
