Did I get a bunch of bad advice in pubs?

Some particulars:

- US citizen
- Living in UK since March 2006
- Probably moving back to US in March 2008
- Clueless
- No, really, shockingly clueless

If I had £10 for every time I've been told that money I earn from non-UK sources isn't taxed in the UK . . .

I've heard this even from a UK accountant friend. She had not been drinking at the time, which placed her in the statistical minority.

Reading this wondrous site and others, I'm starting to get the impression all these reassuring people erred.

For the 2006-07 tax year:

- Money from UK sources: £0
- Money from US sources that stayed in the US save for ATM withdrawals (of which I have a record from bank statements): more than £0, but not a fortune
- Employer: US, with freelance contract by US standards, but paid weekly like a salary

Three questions:

1. It's edging into my thick cranium that I'm taxed on the US money just as if it came from UK sources, although Brits and American expats continue to tell me I'm taxed only on what I yanked out of the ATM, while others say I'm taxed not even on that.

2. When I file a US tax return for these US dollars, how does the UK tax me on these same dollars given the tax treaty?

3. And, side note, just before I slog to the expert's office: Anybody have any experience on whether part of one's rent is deductible in the UK if one works freelance at home?

And, 4. Why are the laws in both countries so inscrutable? It's as if, I don't know, there's some sort of machine that requires the complexity to remain afloat.

Never mind Question 4.

1)  Your consciousness has arrived.  It's UK source, not US source, since (a) you're UK resident and (b) the work was done on UK soil (it's where you do the work that counts, not where the payer is). 

2)  The UK taxes you first.  The US takes a tax credit for any UK tax paid or accrued.  You usually end up paying a whopping big chunk to the UK and either minimal or no tax to the US.  The maths to fix this will be quite messy.  You'll need to work with a really, really good tax accountant.

3)  Sure.  Of course. 

4)  rant accepted, question ignored.

Very grateful, Lizzit. Thank you.

One final question: Does this "big whopping chunk" you mention go by the 40 percent/22 percent method?

I'm thinking obviously yes but wary of saying obviously yes.

Also, Lizzit,

You mentioned "messy," and I know what you mean, but in a bizarre turn given my usual cluelessness (as noted above), I actually kept detailed papers and receipts of everything down to the date.

I do not know why. Perhaps it is proof that the untold recesses of the brain can function properly even while the rest of the organ maintains all the common sense of lunch meat.

In fact, my papers are so thorough that I'm thinking of following the instructions and doing this myself, as I've always done in the USA.

Feel free to talk me out of that if the impulse strikes.

And thank you again.

There is nothing wrong with doing it yourself - I admire you.

The UK system will firstly want/need to know if you are employed or self-employed.  Status issues - as they known here - are complex but full details can be found on HMRCs website.  This is not to say that HMRC get this right each time.  A specialist (it goes without saying a UK qualified specialist) in this area may save you some money and add certainty.

The next question is whether or not you were UK resident for UK tax purposes in 2005/06, 2006/07 or 2007/08.  This depends on a combination of your intentions and actual days of presence.  There is some - pretty indequate - guidance on this on HMRC's website.

Thirdly you'll need some US advice (which interlinks with the UK) as to whether you could claim the foreign earned income exclusion in 2006, 2007 or 2008 and whether you could or should claim exemption from self-employment taxes.  (I assume this is indeed how you filed your US returns for 2006 and will do for 2007.)

I've only touched on a few main issues here, but do go for it!

Guya - That is very kind of you, to take the time. Thank you so much.

I do hope you end up paying the lowest tax legally allowable.  If you're keen on doing it yourself, you might want to have your work reviewed by a qualified accountant before you pass it in to the government to double check you've gotten all the details right.  A dual qualified individual like Guya would be ideal, though I don't know if Guya does reviews.

I too am a do-it-yourselfer.  I once set my own broken bone in my own wrist.   I get it from my Dad. I remember my father taking three weeks's worth of nights and weekends to do his tax return each year.  But I can do his old returns in about two hours.  Sometimes, the value of your time is worth the paying someone else to do the work.

An international tax accountant here in the UK told me that anybody who does their own US taxes would find doing their own UK taxes to be a breeze.

I suppose it would be depend on your individual situation, though.

An international tax accountant here in the UK told me that anybody who does their own US taxes would find doing their own UK taxes to be a breeze.

I suppose it would be depend on your individual situation, though.

This is definitely true in my case!

The IRS estimates time to complete their forms, estimated times for my forms add up to 67 hours.  So if I took vacation from work to do my taxes, I would have to take off 8 1/2 days.  Of course the time is much less once you learn the forms, so while this was a good estimate my first year, it is much easier now.  Still, outrageous.  And while tax software helps, you still need to understand a lot for some of the more complex forms.