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The UK Agency Company or UK Nominee Company is a less popular kind of structure, but nevertheless really convenient, ideal when the Principal Company is an offshore company and it is wished to trade everywhere apart from the UK.  A UK Company Agent is a Ltd or LLP regularly incorporated with Companies House that will be able to act on behalf of the Offshore, using its name instead, when entering in contracts with third parties. The UK Company can be already existent or incorporated ad hoc. The structure can be easily explained as follows:

Between the Offshore Company, also called the Principal, and the UK Company, also called the Agent, is a private agreement that has got the function to regulate duties and rights respectively. The UK Company will allow the Offshore to use its name and registered number and all the business will be carried on by the UK Company under the instruction of the Principal. When the Agent enters in to contract with clients, third parties in the above structures, the Principal does not need to be disclosed and, therefore, they will receive the service and will be invoiced by the Agent. Clients will pay the due amount in to the UK Company bank account, which at this point, will immediately transfer the amounts to the Offshore Company, after keeping its commission, which usually is between 2.5% and 10% depending on the turnover of the business. It is not really possible to predict a limit on agency commissions as it will depend on what the Parties agree.

Having explained the structure, there are also criteria that the two companies have to meet:

the agreement between the Principal and the Agent must be properly executed before the UK Company starts to trade;

1. as anticipated above the Agent must not trade within the UK or with any UK Business;
2. the agreement must set out a proper commercial fee that also needs to be concretely paid out;
3. the Beneficial owner of the Offshore company should not be subject to UK tax;
4. The relationship between the UK and offshore company have to be pure commercial;

To sum up, there should be no relationship between the Principal and the Agent apart from the pure business relationship (e.g. no same shareholder, no same director, it is even better if they have not traded together before). Furthermore, the agreement should not be “just a piece of paper”, but a detailed article setting out how the relationship between the Parties will work and of course how the commissions must be paid.

The success of this structure is given by the fact that the Agent pays corporation tax in the UK according to the amount received for its commission, after deductions on expenses. Therefore, the HMR&Customs can only assess the UK Company for taxes and it has no control upon all the revenue sent to the principal. This structure is completely legal, being accepted by the UK tax authorities, in English law and even after the G20 there are no imminent signs that can lead to a possible change. Another reason that supports the success of this structure is that in terms of account preparation in the UK only the incoming and outgoing of the Agent is relevant, the Offshore, still, is not affected. The kind of questions that the HMR&Cosums might ask is a detailed description of the business of the company, details of company transactions with entities owned by the same shareholders and copies of contracts concluded by the company trying to establish whether there are grounds for a challenge on the basis of transfer pricing legislation and whether a place of business has been created in the UK for the Offshore. To ensure that it does not become taxable in the UK, the Agent should ensure that it conducts any business on behalf of the Offshore Company outside of the UK. As long as this is the position and providing there is no UK source income, the offshore company should have no liability for UK tax. In case the HMR&Customs opens an enquiry into the affairs of an Agency company, professional advice should be taken, but handling an enquiry incorrectly can be expensive in terms of professional fees, penalties and interest in respect of unpaid tax.
Lastly, with the ever increasing vigilance of the tax authorities, especially with the introduction of offshore blacklists after the G20, it has become increasingly difficult for companies incorporated in offshore jurisdictions to trade with on-shore companies, especially in European countries where the receipt of invoices from an offshore company would not be acceptable. For these reasons the agency structure, in these times, is a good option to look at.

Jenny Suprani
Business Consultant