Fundamentals
Transfer Pricing SME Exemption
The transfer pricing SME exemption is a UK relief under Part 4 TIOPA 2010 removing small and medium-sized enterprises from the general duty to apply arm's length pricing to connected party transactions. Qualification depends on staff headcount, turnover and balance sheet size, with medium firms retaining some exposure.
To qualify as small, a group must have fewer than 50 employees and either turnover or balance sheet total not exceeding 10 million euros. Medium-sized groups have fewer than 250 employees and turnover up to 50 million euros. Small enterprises are largely exempt, and medium ones retain a general exemption.
HMRC can issue a transfer pricing direction notice requiring a medium-sized enterprise to apply the rules to a specific transaction, withdrawing the exemption where risk is identified. Groups relying on the exemption should still document group structure and headcount, and monitor their status each year.
In practice
What matters when applying transfer pricing sme exemption
- Small enterprises: under 50 staff and turnover or assets under 10m euros
- Medium enterprises: under 250 staff and turnover under 50m euros
- Medium enterprises lose exemption for non-qualifying territory transactions
- HMRC can issue a direction notice removing the exemption
- Group-wide, not standalone, thresholds determine eligibility
Frequently asked
Common questions
Does the SME exemption apply to all transactions?+
No. Small enterprises benefit from a near-total exemption from UK transfer pricing rules, but medium-sized enterprises only receive a general exemption. That exemption does not extend to transactions with connected parties resident in territories lacking a qualifying double tax treaty with the UK, where arm's length pricing still applies.
Can HMRC remove SME exemption status?+
Yes. HMRC can issue a transfer pricing direction notice to a medium-sized enterprise, requiring it to apply the rules to a named transaction seen as a risk to UK tax revenue. This power does not apply to small enterprises, which remain exempt regardless. Once issued, the enterprise must prepare arm's length pricing and documentation for that transaction.
See how the tooling handles this in practice
Our transfer pricing tools calculate intercompany charges, benchmark financing and reconcile the intercompany ledger from your own data. Book a short walkthrough and we will show the workflow on a scenario that matches your group structure, rather than a generic demo dataset.