If you are temporarily in the UK, you have quite a few options open to you. You should get your advice before you move, not after.
The first thing to note is that UK top tax band is much higher than the US, you hit it much sooner, and fewer deductions are allowed. So staying within the US tax regime is much preferable to winding up in the UK system. The shorter your stay, the easier it is to remain under US jurisdiction.
Option 1: Do nothing prior to your move. The UK has an Apr-Apr tax year. You may not meet the definition of resident for the first year, or at least a part-year resident; and for the second year, you'd be a part-year resident. Thus, you might be lucky enough to get two years' worth of UK lower bands for your one year stay. You'd need to sign up for National Insurance (NI, or UK Social security), and get expert assistance to determine when you would start having to pay NI.
Options 2 & 3: Prior to your move, set up a US LLC or S-corp. Under the US tax regime, it's taxed similar to self-employment; under the UK tax system, it's a company and thus your only taxable on dividends remitted to the UK. With the right structuring of your income and expenses, you would have zero UK tax and your US income tax would remain similar -or even lower- to what it is now. You also get to stay in the US social security system, which has better pension benefits than the UK one. You risk having the US corporation deemed to be a UK corporation, and must take steps during the set up of the corporation to avoid this happening. This requires a couple of planning sessions with someone who understands both US and UK individual and corporate tax law prior to your move to ensure everything is set up right.
Along the way, you need to look at
whether a work permit is required;
whether you truly are self-employed, or whether your "client" is actually an employer trying to pull a fast one on the IRS (vis a vis employment taxes);
health insurance during the trip and after the trip; and
which of several tax deductions for overseas trips will apply, given your attempts to remain in the US system.
The issue of a work permit is a legal issue; like the US, persons working illegally in the UK are still liable for the full whack of UK taxes.
This may all seem daunting, but given the massive tax savings available, it's well worth the bother. The more money you make per annum, the bigger the savings.
Cheers from London,
Liz
www.BritishAmericanTax.com
