The basic idea is for the UK company to agree to transact business on behalf of an undisclosed offshore company. The company normally used is a British Virgin Island Company or a Gibraltar Company.

This agreement must be in writing. Business will then be contracted for by the UK company on behalf of the offshore company. Gross income of the offshore company will be received in the bank account of the UK company and subsequently remitted to the offshore company, less a commission for the use of its services, normally 5% of turnover. The UK company only pays corporation tax on its own income, the commission received; the remainder of the income passes to the offshore company free of corporation tax.It is preferable that the offshore company is managed and controlled outside the UK and it is also preferable that the UK company’s directors reside outside the UK. There should be no trading in the UK and all contracts signed by the UK company on behalf of the offshore company must be signed outside the UK.

A company must register for VAT if its turnover is in excess of some amount within the EU. The company may register before it reaches this turnover, if it wishes to make any reclaims of VAT. If the UK nominee company is supplying, as a nominee, services to a third party outside the UK, the supply will be zero-rated if the services fall within certain categories such us advertising, consulting, engineering, legal and accounting services, transfers and assignments of intellectual property rights, the supply of staff, banking, financial and insurance services, and certain kinds of transport.

If the UK company is supplying goods as nominee it will need to charge VAT on a supply to a third party in an EU member state unless that third party is itself registered for VAT in the EU and provides its VAT number to the UK company. Where the goods are supplied to a third party outside the EU the supply will not be subject to VAT. It is also important to note that VAT will be chargeable on the UK company’s fees invoiced to its offshore principal for its services as agent.