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Topic: Independent contractor question  (Read 592 times)

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Independent contractor question
« on: May 11, 2018, 09:21:58 PM »
Hello, this is kind of a complex situation. I have recently been hired as an independent contractor for a Chinese/American company (100% remote), and I will be paid in US $$. I am currently living in the UK on a spousal visa.

So, how do I go about UK and US taxes? Do I have to pay tax in both countries? Thanks.
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Re: Independent contractor question
« Reply #1 on: May 12, 2018, 12:08:44 AM »
Hello, this is kind of a complex situation. I have recently been hired as an independent contractor for a Chinese/American company (100% remote), and I will be paid in US $$. I am currently living in the UK on a spousal visa.

So, how do I go about UK and US taxes? Do I have to pay tax in both countries? Thanks.

Are you a US citizen? If so, you are required to file your annual returns because US taxes based on citizenship and not on place of residence. The amount of tax you will owe to US IRS will depend on whether you can claim foreign earned income exclusions.


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#1 NON-PRIORITY UNMARRIED PARTNER
Living together since Nov 2014, son born on Mar 2016
Decision: Refusal (70 BD)
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Married British Spouse: 07 Mar 2018
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Received Passport: 07 May 2018 (APPROVED)


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Re: Independent contractor question
« Reply #3 on: May 12, 2018, 12:24:55 AM »
Hello, this is kind of a complex situation. I have recently been hired as an independent contractor for a Chinese/American company (100% remote), and I will be paid in US $$. I am currently living in the UK on a spousal visa.

So, how do I go about UK and US taxes? Do I have to pay tax in both countries? Thanks.

A big thing is that your employer needs to follow all of UK employment law in your contract involving pensions, etc. It's complicated and I'm sure someone else will chime in with a bit more knowledge.
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Re: Independent contractor question
« Reply #4 on: May 12, 2018, 11:57:28 AM »
A big thing is that your employer needs to follow all of UK employment law in your contract involving pensions, etc. It's complicated and I'm sure someone else will chime in with a bit more knowledge.
Agreed - if you are an employed worker you are entitled to all of the benefits of local law; auto-enrolled pension, holiday pay, maternity pay, sick pay etc.  The UK has the primary right to charge tax. Hopefully the engager of the work will operate PAYE.


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Re: Independent contractor question
« Reply #5 on: May 13, 2018, 11:39:50 AM »
Agreed - if you are an employed worker you are entitled to all of the benefits of local law; auto-enrolled pension, holiday pay, maternity pay, sick pay etc.  The UK has the primary right to charge tax. Hopefully the engager of the work will operate PAYE.
Contractors aren't entitled to those things in the US so why would they be when working over here? Just curious... I feel like I'm missing something my employer may need to be doing. I'm also working on my self assessment and trying to figure out if I can file consistent tax years (because you can't claim no deductions in the US until you've had a year with no tax liability).


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Re: Independent contractor question
« Reply #6 on: May 13, 2018, 12:21:29 PM »
Contractors aren't entitled to those things in the US so why would they be when working over here? Just curious... I feel like I'm missing something my employer may need to be doing. I'm also working on my self assessment and trying to figure out if I can file consistent tax years (because you can't claim no deductions in the US until you've had a year with no tax liability).
The laws of England & Wales or Scotland prevail when work is performed in the United Kingdom.


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Re: Independent contractor question
« Reply #7 on: May 13, 2018, 07:28:41 PM »
Contractors aren't entitled to those things in the US so why would they be when working over here? Just curious... I feel like I'm missing something my employer may need to be doing. I'm also working on my self assessment and trying to figure out if I can file consistent tax years (because you can't claim no deductions in the US until you've had a year with no tax liability).
Actually this response is not meant for Margo so much as the OP.  I think Margo's situation is different in some ways and similar in others.

I'm no tax expert, but I do know that it is very important from a tax perspective for you to know whether you are a contractor or something more similar to an employee.  Just because the company says you are a contractor is NOT enough.  The way the contract is written means a lot, but that is superseded by the actual working practices.  You must prove that you have direction and control over the work and how it gets done.  And a ton more stuff.   It's a fantastically complicated concept and is open to plenty of interpretation.  Google IR35 for the opening of the rabbit hole.  The reason this is important is that you must structure your personal business practices according to whether you are considered an almost empoyee or an actual independent contractor.  If you get it wrong, HMRC can audit you at any time and collect back taxes that you should have paid.  This can be a really, really expensive and bad thing. 

There is a well known company called QDOS
https://www.qdoscontractor.com/ir35-contract-assessment
 
that offers to help you figure out whether you are inside or outside of IR35 by reviewing your contract and your working practices.  If both of these pass, then they will cover you with insurance against any prosecutions by HMRC.

If they determine that you are inside of IR35 and thus sort of an employee, then they can probably suggest an accounting device called an umbrella company that can help you collect your money while doing what you need to do to satisfy HMRC.  Keep in mind that all of this stuff and all of this advice is appropriate for UK citizens to stay straight with UK taxes.  It is probably completely inappropriate for Americans in terms of what is best for US taxes.  You'll have to pay for a lot of advice from someone who knows the US system to be sure, unless somebody like Guya will offer advice here. 

It's pretty expensive to hire all the accountants on both sides of the ocean to manage your contracts and taxes, that's why independent contractors get paid a ton more money than salaried employers (like 4 times more).   They also have to pay their own taxes ( I regularly write checks to HMRC for £18,000) and save up for holidays, pensions, sick days and insurance themselves.  If you are not earning enough money to pay these accountants , advisors and insurance for yourself, then alarm bells should be ringing. 

By the way, here's the link to my accountant, who has a ton of resources about contracting on his site.  I think they've even got sample invoices and templates.   I am not endorsing them as accountants, that's a whole other post but you might find some handy stuff there. 

https://www.sjdaccountancy.com/


I hope this helps you. 


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Re: Independent contractor question
« Reply #8 on: May 14, 2018, 08:08:07 PM »
Karlee, HMRC also has a guide that can get you started determining if your work fits the self-employment parameters: https://www.gov.uk/employment-status/selfemployed-contractor

In terms of the taxes, I have multiple American clients who pay me in USD. They pay me using Paypal, where I can convert the payments to GBP and then deposit the money in my UK bank account. I'm registered with HMRC as a sole trader and pay taxes in the UK using the self-assessment process. You shouldn't owe any US taxes from your self-employment taxes if you earn less money than what is covered under the US-UK tax treaty.


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Re: Independent contractor question
« Reply #9 on: May 18, 2018, 02:03:06 PM »
If you are an independent contractor, US citizen and living in the UK you'll have to pay UK income tax and payroll taxes.....ie National Insurance. As a US citizen you are also liable to the IRS for tax on your worldwide income, but you can use foreign earned income exclusion or foreign tax credits to offset that liability. The critical thing is to make sure you do not pay US employment/payroll taxes when you fill out your US self employed tax form.


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Re: Independent contractor question
« Reply #10 on: May 30, 2018, 11:54:51 AM »
Hi all... sorry I'm late to the discussion, but I'm in a similar situation.  Is it common, as an independent contractor, to end up paying taxes in both the U.S. and the UK? 

This should be the only year I have to worry about this as we are going through the process to register as a British company, but better to be safe than sorry!
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