Working for a US company, paid in US dollars to a US account. Do I file in UK?

I have a question that I haven't been able to get answered by anyone else, so I figured I'd give this forum a try.

I have been living in the UK since last September. Since that time, I have been working as a self-employed subcontractor for a US company, being paid in US dollars to a US account. As of now, I have not moved any money over to the UK. My husband is a British citizen, so by that fact alone I am entitled to NHS benefits. I do not collect any other benefits. My question is: do I have to file taxes in the UK as well? If I do, will I get a credit for anything I may have to pay in US taxes? I don't want to end up paying twice!

See a dual qualified US/UK professional.  Tax planning should be done BEFORE you act, not after.  You must act quickly (i.e., before your next paycheque) to ensure you are not delinquent on back taxes, and to reduce future taxes.

Many people do precisely what you are doing, but don't follow all of the implications.  Here are a few:

1. You need to decide if the income is US or foreign source on your US tax return both for Form 1116 and for Form 2555.
2. You need to know if you should already have registered in the UK as self-employed (you only had 3 months, so will probably be fined the automatic £100 penalty).
3. You need to have registered for paying UK National Insurance.
4. If you are claiming exemption from Self-Employment Taxes you'll also want to have requested a Certificate under the totalization agreement.
5. You may need to have registered for VAT.
6. You need to prepare accounts for your US tax return following Generally Accepted Accounting Principles (GAAP), but following US GAAP.
7. You need to prepare accounts for your UK tax return following Generally Accepted Accounting Principles (GAAP), but following UK GAAP.
8. You'll need to adjust both sets of accounts for tax purposes, including such items as depreciation, capital allowances and transfer pricing.
9. From a corporate perspective the company paying you will need advice on whether your presence in the UK forms a permanent establishment of the US entity thus requiring the entity to prepare filings for UK companies house and tax authorities.
10. You will also want employment law advice as to whether your activities have the badges of trade (eg you have the risk of losing money and can engage others to complete the work) or instead you are actually an employee under English law who happens to work at some distance.  If you are an employee (whether or not the payor labels you a contractor) then you have UK employment rights and will need to pay tax as an employee.
11. There is UK tax to pay for the year ending 5 April 2007.  You'll need to decide when best to get this paid over.

Precisely as Lizzit says, these are all complicated issues, and it easy to be thankful for getting the work without spending the time getting all your ducks in a row.

Guya,

This post has really frightened me.  I quit my full-time job 4 months ago to freelance. I have not done anything on that list.  Am I going to get thrown in jail?

I mostly get paid in dollars, by US companies. On occasion, a US-based company pays me in pounds from their UK office.  I should also mention that my wife is the primary breadwinner, and my little freelancing gig does not bring in much to the table.

As for moving money from the US to the UK, how much are you allowed to move over without penalty? If I go to the ATM occasionally withdraw 100£ for a night out, is that subject to taxes?!?!?!    We have a small nest egg in a US bank account, in US dollars, that we use for "frivolous" UK expenses like entertainment and traveling.

You might need that account for "frivolous" things like tax.  Do seek a professional today who can sort this out for you.  Rather than being stressed, let someone else take the stress away from you.

All the decision points that Guya talks about are easier with someone else guiding you through it.  This is not a DIY tax situation.

Hello guya,

Just wondered if "You need to have registered for paying UK National Insurance" is for anyone living in the UK, or simply because blue_iris's husband is a British citizen and she's entitled to benefits. Would the U.K. National Insurance be paid on the income in U.S. dollars?

My situation is fairly similar except that I have not yet received any U.S. freelance jobs since moving here... I will just need to plan on taking all those steps if it happens.

-Jeremy

Anyone who is self-employed in the UK must register as self-employed (including towards payment of national insurance) within 3 months of commencement.  This is explained here:

http://www.businesslink.gov.uk/bdotg/action/detail?r.l1=1073858808&r.l3=1073875654&r.t=RESOURCES&type=RESOURCES&itemId=1073789949&r.i=1073789950&r.l2=1073859215&r.s=sc

I see that, guya, thanks. Since I have not been doing any work for anyone (what I do is on a consultancy basis and clients are elusive at the moment), I can't imagine how it could reasonably be said that I am self-employed currently--"unemployed" is far more accurate. If I guess wrong and HMRC rules that I have been self-employed, I suppose the £100 penalty is inevitable, as we've been here 4 months. But that would only come up if I did manage to contract with a client.

Either way, there's plainly no incentive for me to register as self-employed right at this moment; doing so would guarantee the penalty.

They don't always charge the penalty fee....plead and you may get away with it.


Vicky

Vicky is correct - but you may want to register just so you can pay UK Class 2 NI - it is a very cheap way of buying years worth of UK State pension benefits and thus income during retirement.

Absolutely.

I have registered and pay my class 2's, even though I could have applied for an exemption.  If you are planning on staying in the UK long term I think this is a good idea.  I also registered a year too late (due to a MAJOR misunderstanding on my part) and they let me off the penalty!


Vicky