The UK Agency company is a popular vehicle within the field of international trade.The rationale behind the use of such an entity is that the Company, fully liable for UK corporate tax, undertakes business for and on behalf of a non-resident Principal.
The concept of the structure is that the Principal, who has the knowledge, know-how and business acumen, engages an independent UK company to act as its agent for some or all of its international business. The UK Company in turn will enter into trading agreements with customers of the Principal to buy or supply goods from or to third parties for and on behalf of the Principal.
Generally a formal agreement is entered into between the Principal and the UK Company, which would entitle the UK Company to a fee relating to the services that it is requested to perform. All trading operations are executed by the UK Company for and on behalf of the Principal.
The fee charged by the UK Company would be an amount that reflects the responsibility and work undertaken by the UK Company on behalf of the Principal. This fee will be retained by the UK Company to cover its operational and administrative costs. The profit element of the fee will then be subject to UK corporation tax at 20-21%. An acceptable fee, chargeable by the UK Company would be between 5-10% of gross turnover or profit, whichever is the greater. The balance of the trade would be for the account of the Principal.
If trading occurs within the European Union and the turnover of the UK Company exceeds the threshold for VAT registration purposes of £81,000 the UK Company would be obliged to register for VAT within the UK. A UK company can voluntarily register for VAT should the turnover be below the stated threshold as long as it can demonstrate that it intends to turnover more than the threshold amount.
VAT Registration is an important feature when trading in the European Union as this is the only method of facilitating cross-border triangulation without the need to charge VAT to other corporate bodies within other member States. Put simply, if a UK Company issues a VAT invoice to another Company based in another European Union member State and as long as the recipient company’s VAT/TVA number is quoted on the same invoice the supply can be zero rated.