Taxes - living in UK but working for US company

I have checked out the UK embassy IRS website but it doesn't seem to answer this question...

If someone lives in the UK but works remotely for a US company and is paid - in US dollars - into a US bank account, what are the implications of this tax-wise? I know that regardless of where a US citizen lives they have to file US taxes every year - but beyond that I can't figure out how UK taxes work into it.

You will need to establish if the US person forms a permanent establishment of the US entity because this may require UK corporate filings for the US entity.

From an individual perspective the income is reportable on a UK tax return as employment income & UK tax is due.

The UK tax will be largely creditable in the US unless the income is entirely excluded as foreign earned income.

This is a situation somewhat like mine.   I will be moving to the UK this autumn but just started a new job with an american company.  I work online, but as part of my hiring contract I did demand that they pay me an english salary, in pounds, to an english account (once I have it established.  my first few checks will go into my american account before I go.)

I am mostly clueless about this still but my company did tell me that instead of being an employee, I need to work under a freelance contract because it absolves them of having to establish their corporation in the UK.   I believe that as a freelancer, I need to register in the UK upon arrival in order to help when tax time rolls around.   It also means other things, like putting aside a good chunk of money to pay those taxes.

Keep me posted about anything you learn and I will do the same.  I'm getting married in less than two weeks, so I might be out of the loop for a bit but I am very curious about this as well.

I believe that as a freelancer, I need to register in the UK upon arrival in order to help when tax time rolls around.

If you are self-employed, then yes, after arriving in the UK you will need to register the existence of your business with HMRC .... Her Majesty's Revenue & Customs .... within 3 months. Failure to do so might result in a £100 penalty being levied .

Registering the business will not just notify the matter from the tax point of view, but also as regards NICs .... National Insurance Contributions. If you are self-employed then you will be liable for Class 2 contributions, but it is easy to set up a Direct Debit to pay those automatically each month.

Also VAT! Value Added Tax? Might you be liable to register for that? It depends upon the turnover of your business. Are you able to tell us roughly how much turnover we are talking about?

Alternatively, instead of you being self-employed, you might set up a UK limited company, there then being a contract between the US company and your own company. In this case you would not be self-employed, but would be paid as a Director of the company, and take dividend income from it. Dependent upon the size of the figures, this might save you a sizeable chunk of UK tax.

However, I am aware from topics in this section of this Board that if you do set up your own limited company, then under US tax law it would be a CFC .... Controlled Foreign Corporation ..... and you would need to fully consider the implications of that.

Also appreciate that unless you form your own limited company, it is possible that unless HMRC see your business as a genuine business, they might not agree that you are self-employed. The point is this. If you were employed in the UK then employer's NICs would be payable. In other words, there might be a tax risk, or rather NIC risk, that HMRC might try to collect employer's NICs.

Your business .... would it be a one-client business? Or would there also be other clients? Possibly from the UK? Not necessarily immediately, but might other clients get added later?

But hey, you are just about to get married! You don't want to cloud your mind now with the finer details of your situation after you arrive in the UK!

If you are self-employed, then yes, after arriving in the UK you will need to register the existence of your business with HMRC .... Her Majesty's Revenue & Customs .... within 3 months. Failure to do so might result in a £100 penalty being levied .

It is within three months of issuing your first invoice.

Vicky

Interesting question! Technically the answer is ... three months of the start of the business. But what determines the start of the business? This might help :-

The ascertainment of the commencement date is a question of fact, supported by documentary evidence. A trading business is said to commence its business when it opens its door to the public. This is straightforward. The same applies to a service provider who opens his door to the public, ready to render their services. The question of income generation is of no relevance.

With some types of business, such as a shop, it is easier. It is the date the shop opens for business, even though lots of activity has happened previously, for example, buying the shop premises, buying the stock to go into the shop, etc..

But likewise for a service provider the answer is when "ready to render their service", and not when the first invoice is issued.

It is according to HMRC.  My boyfriend went freelance two months ago, I have been dealing with this a lot.


Vicky

I have to say, and I had a good look at the HMRC website yesterday, looking at this point ...... what is the start date of a business? ....... its guidance, to the General Public, and indeed to their own staff, is abysmal!

Accordingly I am not surprised that someone has been told that the business starts on the date of the first invoice, but the reality is that it is not that simple.

Okay, in a case where someone is registering a company then it is different, but if there is no date of company registration to go by, then the rules are that HMRC need to be told within three months of the date of the first invoice.  Really.


Vicky

If it is a limited company, the date of incorporation is its "date of birth", but not necessarily the start date of its business. So the same principles apply.

The start date? Again the guidance on the HMRC website, including to its own staff, is abysmal, and there will often be cases where the start date is earlier than when the date of the first invoice.

But, for the purpose of imposing, or rather not imposing, a £100 penalty, if HMRC are happen to accept that the date of the first invoice is the start date, then I am not going to argue with that. But it does not make it legally correct.

I'll also give another example. If the business is a manufacturing one, the start date is when it start its manufacturing process, not when it makes its first sale.

The questioner appears at face value to be an employee of the US entity, not self-employed but one would need to examine to see if the badges of trade will exist - eg could the questioner substitute other workers, make losses etc.

The law on registration as self-employed is contained in Regulation 87 of the Social Security (Contributions) Regulations SI 2001 No 1004. Since 31 January 2001, those who are liable to pay Class 2 NICs must register this obligation within three months from the end of the month in which their liability commenced. Failure to do so results in a fixed penalty of £100.

Reg 87 describes this as:

"(4)     The penalty referred to ... shall be incurred—

(a)     in the case of a failure which first occurs on or after 30th April 2001 and continues throughout the period of three calendar months beginning with the first day of the calendar month following that in which he becomes liable to pay a Class 2 contribution, the date after the day on which that period ends".

In practice the liability commences when the self-employment commences.  This will be after pre-trading activities but almost always before the first invoice is issued.

Hey guys, thanks for the replies. 

Basically, I do full time freelance work for the same company nearly all the time.   Most of their employees are all across the world, so it's just easier for them to call us all freelancers instead of employees and make us responsible for paying whatever taxes we might be subject to in our home countries.

I might occasionally take on an odd job here and there from another client, but it's not very often or for much money.  My main client gets about 40 hours a week out of me and is my main source of income.  I have an NDA and can't say how much I make in a public space, but I can say that I make the same tidy sum each month and it's more than my husband earns in his posh Uni lecturer job.   (If it really matters, we can talk privately.)

I am pretty concerned about all of this just because I don't want to screw anything up and end up jeapordizing my status or owing massive back taxes.   I also just want to do it the right way the first time and not have to think about it much.

I guess something else I need to understand is WHEN to do this part.  If I am in England on a spousal settlement visa, can I/should I do this right after arriving?  Or is this something I handle on the US side until I actually have permanent residence issued in two years?

Thank you again.  As you can imagine, with everything else going on (and this main employer of mine having a massive launch deadline last week, too!) my head is really spinning.  I appreciate the help.

If I am in England on a spousal settlement visa, can I/should I do this right after arriving?

Yes!

Or is this something I handle on the US side until I actually have permanent residence issued in two years?

No! Quite simply, you cannot ignore UK taxes for a couple of years.

Most of their employees are all across the world, so it's just easier for them to call us all freelancers instead of employees and make us responsible for paying whatever taxes we might be subject to in our home countries.

Of course easier, and quite possibly cheaper, as regards taxes payable and national insurance contributions payable. But for that reason UK tax law (and I suspect the tax law of a number of other countries) does not just allow people to designate themselves as self-employed, and that not ever be challenged.

However it is pleasing to note that :-

I might occasionally take on an odd job here and there from another client, but it's not very often or for much money.

-: and given your business does not have just one client, it should be possible to substantiate that you are self-employed, under UK tax law. However :-

this main employer of mine having a massive launch deadline last week,

-: you really do need to stop using the word "employer" and start using "client"!

Within 3 months of arriving in the UK on the spouse visa you should register the existence of your business with HMRC ..... Her Majesty's Revenue and Customs .... otherwise you would become liable to a £100 penalty simply for not registering in time. Registering will ensure that you start paying NI contributions .... Class 2 = £2.30 per week (but payable every 4 weeks, by Direct Debit is the easiest means of making payment).

John, thank you so much.  It's good to know that having an extra client from time to time is helpful and not detrimental.   I will be sure to register right away.   I'm a new freelancer so I don't even know much about this in the states, so this is very helpful to me as I find my way along.  Thanks!