I have a question about US citizen starting small private limited companies in the UK.
I am a retired USC and my wife is UKC. I have lived in the UK for 30+ years. I have indefinite leave to remain. I file US taxes as “married filing separately”. Wife is declared as NRA. All UK and US returns including FBAR and 8938s are filed.
For the past 10 years or so, I have been selling online items I make with turnover well below UK VAT thresholds. Therefore, I have been filing with the HMRC as a sole trader. For my US returns, I use Schedule C to declare my business figures.
I now would like to open a small shop to expand my selling. This will probably require me to generate a UK private limited company to limit liability rather than simply staying as a sole trader. When moving to the shop, I foresee having at most 1 employee and turnover will be kept below UK VAT thresholds. There will be one or two shares depending on when there is just a director or whether there is a director and a secretary.
Here are two options of how I could proceed.
Option A. A UK private limited company is generated where I am the company director. I sign the lease for the shop rental.
Option B. A UK private limited company is generated where my NRA wife is the company director and I am either listed as secretary or not named on the incorporation document but just employed once the company is formed. My wife signs the lease for the shop rental.
Comments very welcome on which people feel is the smarter approach.
Here are a few of the key points as I see…
Option A. US and UK filing are more or less the same using Schedule C for the US return. I could use the ‘check the box’ election on Form 8832 to allow me to change the business classification from corporation to disregarded (option f I believe). Net income from the business would then be taxed on Schedule C.
I have no idea yet how my name on the UK incorporation documents would make me liable for form Controlled Foreign Corporation (CFC) rules ( Subpart F) Clearly no PFICs here and any GILTI could be avoided by making the 8832 tick box selection. UK and probably US returns will be done using traditional accounting rather than cash basis. I do not think this will make much difference as I don’t invoice. Payment is all point of sale.
Option B. This would remove the need for US Schedule C as all sales would be through the new limited company. I don’t know about CFC here. All company UK returns would be done on wife’s UK return.
So, have I oversimplified something..or just go it wrong? Have I missed something? Comments very welcome. Thank- you in advance.
