For the longest time, what many consider the poster child of transfer pricing (TP), the humble benchmarking study, has been commoditised, packaged and appended to TP reports until it needs to be refreshed or finally called upon to defend a company’s filed returns.

HMRC’s latest update to the TP guidance in its International Tax Manual (INTM), serves as a timely reminder that having a solid, robust benchmarking study with a well-researched set of comparables is essential for supporting a taxpayers’ TP policies.

What guidance has been updated?

The INTM provides guidance for both HMRC staff, businesses and tax professionals as to the application of tax rules for UK taxpayers. On 10 November 2025, HMRC updated the TP guidance set out in INTM485120, setting out its approach to assessing benchmarking sets and, moreover, what happens in the event that a taxpayer finds that their results fall outside a benchmarked arm's length range (including in the event of a dispute) and what adjustment is needed to get back into the range.

Under the new guidance, where HMRC finds that a taxpayer’s TP outcome falls outside the arm’s length range, HMRC’s expectation is that an adjustment will be made to the benchmarked median – unless there are compelling reasons otherwise.

The previous iteration of the guidance was less prescriptive, noting that if all points in the range were considered reliable, then any point in the range could arguably satisfy the arm’s length principle. This gave taxpayers and HMRC case teams more flexibility to come to an adjusted outcome (i.e. a point in the range) which reflected relevant commercial factors that otherwise could not be readily adjusted for in the benchmarking study.

The stance under the updated guidance mirrors that taken by many other countries, with HMRC explicitly noting that an adjustment to the median provides it with the most readily defensible position in mutual agreement procedure (MAP) cases, and a starting point for discussions with other competent authorities.

Our key insights

From the outset, the guidance asserts that if the results of the taxpayer in question fall within an acceptable range of arm’s length prices, then no adjustment should be made. Given this observation, many may be wondering whether preparing a benchmarking study with a wide range would provide the best starting point. We think not. 

Much of HMRC’s revised guidance and examples provided focus on eliminating companies even if they are only partially comparable. Notwithstanding the benefits of statistical robustness with having a larger comparable set, it is clear under the revised guidance that HMRC now favours a tighter, more focused benchmarking study with fewer but highly comparable companies. In other words, quality trumps quantity.

Ultimately, while there will always be an element of subjectivity in what is considered a comparable when preparing a benchmarking study, taxpayers should always strive to produce the best comparable sets they can. Groups would do well not to underestimate the fine-toothed comb with which HMRC will scrutinise each comparable in a benchmarking set.

In our experience, the updated guidance reflects the approach HMRC has adopted in recent years, but which has now been formalised providing additional clarity to taxpayers.

Practical application of the guidance

The value of a robust benchmarking study should not be overlooked and is something that often warrants greater investment in preparing. In light of HMRC’s guidance, some best practice recommendations are:

• reviewing any existing benchmarking studies with a critical eye, ensuring that you can articulate and defend why each comparable should be in the benchmarking set;
• when preparing a benchmarking study, assess whether other adjustments can be reliably made to improve comparability (e.g. working capital adjustments);
• ensuring benchmarking studies are updated regularly. Many taxpayers fall into the habit of rolling forward benchmarking studies from year to year, with the risk that the underlying companies in the set may have evolved and are no longer comparable; and
• in the general course of business, if you do fall outside the range, consider whether an adjustment should be made to get back into the range (which may not necessarily be the median).

If you have any questions on the above, or any other tax queries please contact the Macfarlanes Tax and Reward team.