Do I have to pay UK taxes if I was paid in US dollars?

Hi,

I'm hoping this is an easy question...

I am a US citizen that had worked in the UK on a work visa for about 4 months during 2007.

During this period, I was paid in US dollars to my US bank account. I had never opened a UK bank account, and my company had paid for the flat I was living in during my stay.

The council tax and flat utilities were in my name (cash payments at the Post Office), but no other accounts were in my name while in the UK.

I have been told in my situation I would NOT have to pay UK taxes. However, everything I've been reading in these forums seem to indicate otherwise.

Has anyone else been in this situation and can help me get a clear answer?


Thanks,
  Kitty

No advice, sorry, but that must have really not been pleasant to be earning US dollars while living in the UK- you just must cringe even buying a pint of milk! 

You don't owe UK taxes, provided your employer did not have a base of operations (technical term: permanent establisment) in the UK to whom your wages were "charged back".  If your wages were bourne by the US entity without charging back to the UK entity, then under the US/UK treaty you owe no UK tax.

However, under the terms of the work permit regulations, the equivalent of UK tax must have been paid...all this means really is that, if no tax (or a lower rate) was paid on your earnings in the US either, then there is a problem.

Vicky

VictoriaS,

This is a tax-treaty issue, which overrides domestic law regarding which country taxes the income. 

Pookie34,

If you want to confirm your position, you should speak with a tax accountant well-versed in both US and UK taxation, who can help you determine whether or not you meet this treaty exemption.  The crux is whether or not the cost of your employment was bourne by a UK company.

There is a secondary issue, which is that it is a requirement of the work permit scheme that the equivalent PAYE is paid.  If it is not, it may not be a tax issue, but it would be a breach of the immigration rules.

Vicky

I only wish life was quite so straightforward! The view Lizzit gives is indeed the one of the IRS. However, the UK interprets the tax treaty quite differently (in line with the OECD model treaty which the US has not agreed to sign up to!).

There is therefore a potentially different answer from the UK or the US perspective.  If you want certainty and you think you meet the conditions you could file a UK return claiming treaty exemption but you may find that HMRC audit the return because they do not agree with the IRS view.

As Victoria says, you must pay tax somewhere but you may have away from home deductions to claim on your US returns.