Last reviewed: May 2026 | Source: Cabinet Office Functional Standards and HMRC transfer pricing INTM412000
Key finding: Operating model design UK practice combines a six-component framework (strategy, structure, processes, technology, people, governance) with the Cabinet Office Functional Standards for central government, HMRC transfer pricing constraints on shared service centres, and the FRC UK Corporate Governance Code 2024 expectations on the management case.- Six-component TOM framework: strategy, structure, processes, technology, people, governance
- HMRC transfer pricing (INTM412000) - constraints on cross-border shared services
- Cabinet Office Functional Standards - central government framework
Operating model design UK combines a standard six-component framework (strategy, structure, processes, technology, people, governance) with the regulatory and governance infrastructure that constrains the design choices. The HMRC transfer pricing framework (INTM412000) constrains the design of cross-border shared service centres in international groups. The Cabinet Office Functional Standards provide the central government framework. The FRC UK Corporate Governance Code 2024 sets the governance expectations for listed companies, while Companies House Annual Returns data tracks the structural changes at firm level. Companies House restructuring filings show substantial growth in shared services adoption among FTSE 100 subsidiaries post-pandemic.
- Companies House: 4.9 million UK registered companies with group structure data publicly filed; UK Companies Act 2006 requires subsidiary relationship disclosure within 14 days of change
- HMRC transfer pricing (INTM412000): arm's length standard applies to intra-group transactions including management charges from shared service centres to subsidiaries
- FRC UK Corporate Governance Code 2024: Provision 2 requires board to assess governance and structural arrangements, with operating model design as a board-level matter for listed companies
- Cabinet Office Functional Standards (GovS): mandatory operating model standards for UK central government, covering finance (GovS 006), HR (GovS 003), and commercial (GovS 008) functions
- ONS Business Structure Database: enterprise, reporting unit and local unit structure data for UK businesses, providing market reference for operating model benchmarking
The six-component TOM framework anchors UK practitioner work
The six-component target operating model (TOM) framework provides the standard practitioner reference for UK operating model design, covering strategy (the business model and strategic ambition), structure (organisational design and accountability), processes (end-to-end value chains), technology (platforms and applications), people (skills and capabilities), and governance (decision rights and oversight). Each component interacts with the others, with design changes in one component typically requiring adjustments in others. The framework is sector-agnostic and applies to private sector, public sector, and not-for-profit organisations alike.
The framework is operationally simple but applying it with rigour requires structured methodology. Leading UK practitioners use the framework alongside the broader strategic analysis (industry structure, competitive position, capability requirements) and the implementation infrastructure (programme management, change management, capability building). The CIPD Organisation Design guide provides the practitioner reference for the people and structure components specifically.
HMRC transfer pricing constrains shared service centre design
HMRC transfer pricing guidance under INTM412000 constrains the design of cross-border shared service centres in international groups, requiring intra-group service charges to satisfy arm's length pricing rules under section 147 of the Taxation (International and Other Provisions) Act 2010 (TIOPA). The mechanism applies to services provided across UK-international group boundaries, with the cost-plus method being the most common pricing approach for routine support services. The transfer pricing documentation requirements have tightened over recent years, with the master file and local file requirements now mainstream in major international groups.
The transfer pricing constraints affect UK operating model design choices, particularly around the location of shared service centres (UK vs offshore), the scope of services centralised, and the pricing methodology. The OECD Base Erosion and Profit Shifting (BEPS) framework provides the international policy backdrop, with the UK having implemented BEPS-aligned changes through Finance Acts since 2016. HMRC compliance activity in transfer pricing has expanded, with multinational groups facing increased scrutiny on their cross-border arrangements.
Post-pandemic restructuring has increased shared services adoption
Post-pandemic restructuring has substantially increased shared services adoption among UK organisations, with Companies House restructuring filings showing growth in shared service centre arrangements among FTSE 100 subsidiaries and large private groups. The shift reflects multiple drivers: cost pressure from the post-pandemic economic environment, the operational lessons of remote working (which proved many functions could be centrally delivered without physical co-location), and the digital transformation infrastructure that supports centralised service delivery at scale.
The shared services model captures scale economies in functional service delivery while preserving business unit accountability for substantive business decisions. The structure works well for transactional functions (payroll, accounts payable, basic HR services) but is more challenging for higher-judgement work (strategic finance partnering, executive talent management). UK practitioners typically design shared services using a tiered structure with routine work centralised and higher-judgement work distributed.
FRC UK Corporate Governance Code 2024 affects management case design
The FRC UK Corporate Governance Code 2024 affects UK listed company operating model design through the strengthened internal controls reporting requirement, the audit committee oversight provisions, and the broader board responsibilities for senior management. The Provision 29 requirement on internal controls declarations creates a structural reason to document the operating model controls and to evidence their effectiveness, with the board's annual declaration drawing on the documented framework. The Audit Committee's role in monitoring risk management and internal controls intersects with the operating model design choices.
The Code's principles on board leadership, division of responsibilities, and audit/risk oversight all interact with the operating model. Premium listed companies typically integrate the operating model design with the governance framework, ensuring that the design choices satisfy the Code's expectations. The standard listed company framework is less prescriptive but the major institutional investors apply similar expectations through the Stewardship Code engagement.
Cabinet Office Functional Standards provide central government framework
The Cabinet Office Functional Standards provide the cross-government framework for central government operating model design, covering functional leadership across departmental boundaries for finance, HR, commercial, digital and data, communications, legal, internal audit, and other government functions. Each Functional Standard sets out the expectations for the function across central government, with the relevant function head (e.g. Chief Financial Officer for Government for finance) providing the cross-government leadership and capability building.
The mechanism creates a matrix structure in UK central government: departmental Permanent Secretaries are accountable for departmental outcomes, while function heads are accountable for cross-government functional excellence. The structure mirrors the broader UK private sector matrix design challenges, with the Functional Standards providing the documented framework for resolving accountability conflicts. The Cabinet Office Commercial Function, Digital and Data Function, and Finance Function provide the operational infrastructure.
Operating model maturity assessment is a structured discipline
UK operating model maturity assessment is a structured discipline, with practitioners assessing organisations against documented maturity levels across each of the six components and identifying capability gaps for closure. The maturity frameworks vary by component: structure maturity covers clarity of decision rights and accountability; process maturity covers documentation, standardisation, and continuous improvement; technology maturity covers integration and modernisation; people maturity covers capability against the role requirements; governance maturity covers the cadence and effectiveness of the decision-making forums.
The assessment typically draws on internal evidence (process documentation, system architecture, organisation charts, governance papers), external benchmarking (industry peer reference points), and direct observation (workshops, decision-making forum participation). The CIPD Organisation Design guide and the broader practitioner literature provide reference frameworks for each maturity dimension. The Treasury Green Book provides the value-for-money lens where the maturity assessment supports a public sector business case.
Implementation requires structured change management
Operating model implementation requires structured change management, with the Cabinet Office Major Projects Authority and the IPA assurance framework providing the central government reference for major change programmes. The mechanism includes documented programme management, structured stakeholder engagement, capability building, and outcome measurement. The NAO Major Projects tracker provides the empirical record of UK major project performance, with the data showing the operational challenge of large-scale change implementation.
UK private sector implementation typically draws on similar disciplines, with PMO (programme management office) functions providing the operational coordination and consulting firms providing supplementary capacity. The CIPD evidence on change management identifies leadership commitment, clear communication, and capability building as the central determinants of implementation success. The combination of structured methodology and committed leadership produces materially better outcomes than either alone.
| Component | Scope | Key UK reference |
|---|---|---|
| Strategy | Business model and strategic ambition | Companies Act 2006 Strategic Report |
| Structure | Organisational design and accountability | CIPD Organisation Design guide |
| Processes | End-to-end value chains | Functional Standards (gov), ISO |
| Technology | Platforms and applications | CDDO Technology Code of Practice |
| People | Skills and capabilities | CIPD frameworks, Apprenticeship Levy |
| Governance | Decision rights and oversight | FRC UK Corporate Governance Code 2024 |
What is operating model design UK practice based on?
UK operating model design combines the six-component TOM framework (strategy, structure, processes, technology, people, governance) with regulatory and governance infrastructure including HMRC transfer pricing rules, FRC UK Corporate Governance Code 2024, and the Cabinet Office Functional Standards for central government.
What is a target operating model?
A target operating model (TOM) describes how an organisation will deliver its strategy through people, process, technology, and structure. The six-component framework provides the standard reference. The TOM is the future-state design; the current-state assessment identifies the gap, and the implementation plan closes it through structured change.
What is TOM design methodology?
TOM design methodology typically follows a structured sequence: define the strategy and operating model design principles, assess the current state against the six components, design the target state across each component, identify the gap and design the implementation plan, and execute through structured change management with outcome measurement.
What is an operating model framework UK organisations use?
The standard UK reference is the six-component TOM framework, integrated with regulatory and governance infrastructure specific to the organisation's sector. CIPD, the Cabinet Office Functional Standards, and the FRC UK Corporate Governance Code provide complementary frameworks, alongside HMRC transfer pricing for cross-border arrangements.
What is organisational design in the operating model context?
Organisational design is the structure component of the operating model: the design of reporting lines, decision rights, business unit boundaries, and shared service arrangements. The CIPD Organisation Design guide provides the practitioner reference. Companies House restructuring filings track the structural changes at the firm level.
How does HMRC transfer pricing affect operating model design?
HMRC transfer pricing rules constrain the design of cross-border shared service centres and intra-group service arrangements in international groups, requiring arm's length pricing under TIOPA 2010 section 147. The mechanism affects the location, scope, and pricing of shared services, with HMRC compliance activity increasing in recent years.
How we verified this
This article draws on the following primary UK sources:
- Companies House: Annual Returns and restructuring filings
- HMRC: Transfer pricing guidance (INTM412000) and TIOPA 2010
- FRC: UK Corporate Governance Code 2024
- Cabinet Office: Functional Standards across government functions
- ONS: Business Structure Database
- CIPD: Organisation Design guide
- Infrastructure and Projects Authority: assurance framework for major change
No secondary aggregators, no press releases from commercial providers, and no statistics without a named government or regulatory source were used.
