Independent Contractor

I’ve been offered work in the U.K as an Independent contractor. Although this question has made its rounds on the forum in the past, I have a couple of questions:
Can I file a 1040 SE as I did when working as a contractor in the U.S?
Can I file a 2555? Is contractor income eligible for the FEIE exclusion? If not, would I need to file an 1116?
Any other information would be appreciated.
Thanks!

Hello,

With regards to your message, yes, you can use the FEIE to offset your income. However, you will not be able to exclude your income from SE taxes. Fortunately though, the UK has a Totalization Agreement in place with the US that will prevent you from paying SE taxes to both countries. You will simply have to get a certificate of coverage from HMRC and include that with your US return.

That being said, it still may be a better route to use Foreign Tax Credits (as UK rates are higher than US rates). I would recommend running your return using both and see which proves to be most beneficial.

If you would like some more information, this article is a great reference:

http://www.greenbacktaxservices.com/blog/self-employment-business-taxes-for-expatriates/

I hope this helps!

It is quite likely that under local law you will be employed so your employer will have to respect English or Scottish employment law and rights.

You could find yourself subject to UK tax & NIC as an employee.

Take a look at HMRCs employment status indicator: http://www.hmrc.gov.uk/calcs/esi.htm

A certificate of coverage would be otiose if you are actually an employee under local law.

Thank you both.

Interesting it's through an 'umbrella company', via a recruitment agency. Apparently the umbrella company pays your tax and NI directly to HMRC and they also take a proportion of your earnings as a fee. It all sounds rather like PAYE to me and thus making me an employee of the said umbrella company.

Does anyone have experience with these companies, or know more of their workings?

Hello,

With regards to your message, yes, you can use the FEIE to offset your income. However, you will not be able to exclude your income from SE taxes. Fortunately though, the UK has a Totalization Agreement in place with the US that will prevent you from paying SE taxes to both countries. You will simply have to get a certificate of coverage from HMRC and include that with your US return.

If the OP is self employed in the surely there is no US self employment tax or FICA liability.

Thank you both.

Interesting it's through an 'umbrella company', via a recruitment agency. Apparently the umbrella company pays your tax and NI directly to HMRC and they also take a proportion of your earnings as a fee. It all sounds rather like PAYE to me and thus making me an employee of the said umbrella company.

Does anyone have experience with these companies, or know more of their workings?

Yes, you are treated as an employee of the umbrella company, therefore not self employed.

Working under an umbrella company means you are effectively an employee doing PAYE.  Effectively, you will pay the most tax via this method because the umbrella company is doing all of the legwork of dealing with your pay and tax.

I've been doing IT contractor work but have set up my own limited company so pay quite a bit less tax (legally, of course) but also had to get (and pay) an accountant, setup the company with companies house, get VAT registered, but there are quite a lot of tax breaks and you can take a lot of expenses and there's not that much more to it.

I'm not considered self employed however, but instead am the sole employee of my limited company so mostly pay myself dividends but also a little PAYE and can do salary sacrifice and the like for pensions, etc.

I really don't know how it works in the USA, if you similarly setup an LLC or something like that.

Working under an umbrella company means you are effectively an employee doing PAYE.  Effectively, you will pay the most tax via this method because the umbrella company is doing all of the legwork of dealing with your pay and tax.

I've been doing IT contractor work but have set up my own limited company so pay quite a bit less tax (legally, of course) but also had to get (and pay) an accountant, setup the company with companies house, get VAT registered, but there are quite a lot of tax breaks and you can take a lot of expenses and there's not that much more to it.

I'm not considered self employed however, but instead am the sole employee of my limited company so mostly pay myself dividends but also a little PAYE and can do salary sacrifice and the like for pensions, etc.

I really don't know how it works in the USA, if you similarly setup an LLC or something like that.

A UK Limited Company that is more than 50% owned by US persons will require annual Form 5471 filing and thus increased accounting fees. Dividends from the UK Ltd may give rise to US tax even if there is no UK tax - depending on the amounts involved each year.