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November 24th 2017 / BY: Wisteria

Using a UK Company to Access Merchant Payment Services

A typical situation exists where a foreign ecommerce company needs to segment its payment processing in order to protect its ability to collect money from its clients. Reasons for doing so vary:

  1. Spreading the chargeback risks across a number of entities.
  2. Visa appear to have more relaxed rules in the UK than some other countries, especially the US. As such billing from the UK may be an alternative tactic.
  3. For companies with high risk trading activities i.e. those involved in adult, membership services, lending, dating etc who are concerned that their primary merchant processor will cease operating in that sector.

Setting up numerous UK companies and having each one obtain a merchant processing account tends to be a tactic employed by many. However, it does come with some challenges:

Anonymity – In the UK, shareholders and directors are publicly disclosed. This said, our clients often want to remain private. This is potentially possible with the use of nominees.

Accounting – This is straightforward, as long as you set things up clearly. Either:

  1. The UK company is principal; or
  2. It is agent.

This will depend upon who the consumer is contracting with. As principal, the funds that are collected are shown as sales; and payments back to “TopCo” are costs. As agent, these funds are the collection of client monies and the payment of client monies, and as such they do not form part of the company’s profit or loss.

Corporation tax – HMRC will expect any arrangement with a UK company to be at “arm’s length”, even if it is part of a group.

Double Taxation – Where double taxation occurs, in most cases relief is possible.

Management charges – “TopCo” may impose a management charge on the UK company, where justified. Such charge may soak up most, or all the profits made.

VAT registration – VAT registration may need to be considered, depending upon your level of sales, the products and services that are being sold, the location in which the goods or services are being sold, or whether you are acting as principal or agent. On occasion, being VAT registered is beneficial.

Reverse charge – Any management charge from a non-EU company may be subject to VAT reverse charge.

Audit – If part of a large group, or if the UK company is of a certain size, then the UK company may require a statutory audit.