US customer/job and remittance basis

Hi folks!

I have a question about taxation for non-doms. I'd like to claim remittance basis. Let's say, for example, I've made $100 from the US customer, paid to my US bank account. Also assume my personal US tax liability is 20%. Then I transfer $40 to the UK. Will HMRC tax $100, $80 or $40 ? Ideally I'd expect HMRC tax only $40 that I brought to the UK, then I use amount of that tax as Foreign Tax Credit against $20 that I owe to the IRS.

Thanks!

Everything is based on where you are a resident while earning.  If you are physically present in the U.K., you pay tax to the U.K. first and then offset the tax paid here to reduce/eliminate US tax.

So the U.K. will tax the $100 in a crude scenario.  Of course you have a tax free allowance and deductions to reduce that down.

It’s not about money moving but money being earned.

I first came to the U.K. and was a US employee on a US contract (U.K. compliant), paid in USD into a US bank account.  I still paid U.K. tax first, then US.

There are MANY MANY MANY PEO’s that will handle this for you.  A quick Google search will give many names.

Experto says that he will be working in the UK while he is a UK resident. That means that the earnings are UK source income. The remittance basis does not apply to UK source income.

It is irrelevant that the work in the UK is for a customer based outside the UK.

If the work is as an employee of the US company, then there will be responsibilities on either the company or Experto to register for and apply PAYE. For instance, see this
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye75030

Experto says that he will be working in the UK while he is a UK resident. That means that the earnings are UK source income. The remittance basis does not apply to UK source income.

It is irrelevant that the work in the UK is for a customer based outside the UK.

If the work is as an employee of the US company, then there will be responsibilities on either the company or Experto to register for and apply PAYE. For instance, see this
https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye75030

100% agree!

Also agree. Residence isn’t the same thing as domicile.


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Are you performing the duties of your work while resident (for simplicity, physically present) in the UK?

https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1#types-of-income

See section 6.3, 6.4 specifically. It won’t let me copy it on my phone, soz!


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Are you performing the duties of your work while resident (for simplicity, physically present) in the UK?

https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1#types-of-income

See section 6.3, 6.4 specifically. It won’t let me copy it on my phone, soz!


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Here it is below.  It certainly seems clear enough that if the duties are performed while present in the UK that HMRC has the right to tax the income from that work.

6.3 The UK tax you have to pay on your earned income, whether earned in the UK or any other country, will depend on whether or not you’re:

UK resident
domiciled here
and where your duties are carried out.

6.4 If:

your work is normally carried out overseas, but
you’ve to carry out some of your duties in the UK
the work you do in the UK will be part of your duties overseas only when you can show that the work you do in the UK is merely incidental to the duties of your employment overseas.

6.5 Earnings which are earned:

in the UK are liable to UK tax on the arising basis
overseas in a year for which you’re not a UK resident are not taxable in the UK
overseas in a tax year for which you’re a resident of the UK and for which the remittance basis does not apply to you, are taxable in the UK on the arising basis
overseas in a tax year for which you’re a resident of the UK and for which the remittance basis does apply to you, may not be taxable in the UK unless and until they are remitted to the UK. This is subject to certain conditions:
If the conditions are met, and the overseas earnings are not remitted to the UK in the tax year that you receive them, those earnings are not taxable in the UK in that tax year. This is known as Overseas Workday Relief
If the conditions are not met, such earnings are taxable in the UK on the arising basis.

Employment income – where your duties are carried out
6.6 Where you actually carry out your employment duties determines whether your earnings from the employment are earned in the UK or overseas. Where you perform duties in the UK and overseas in a tax year, your annual earnings are normally apportioned based on the number of workdays you’ve done in the UK and the number of workdays you’ve done overseas.

It’s not niche. You’ve had multiple dual qualified accountants respond on this thread and what you’ve described will mean you are taxed on the full amount in the U.K.  Assuming you choose to take a legal path, of course.

As per being taxed on full amount what is your opinion on the following statement?

If one applies the rule to Example 2, the royalty income received by the LLC is not considered derived by the U.K. owner of the LLC, even if under the tax laws of the United States, the LLC is treated as fiscally transparent. Rather, if the LLC is regarded as a corporate entity under U.K. tax laws, the income is treated as derived by the LLC, which is not a resident of the United Kingdom under the treaty. Once a transparent LLC is interposed, the hybrid-entity provision of the U.S.-U.K. treaty effectively denies access to treaty benefits to the U.K. corporate entity.

Source: newcomer link: https://www.thetaxadviser.com/issues/2015/oct/problematic-use-of-transparent-us-llcs-by-foreign-taxpayers.html [nonactive]

I’ve found the uk rules for you (and directed you to them), but it seems like you are either ignoring them or keep pushing until you only hear rules that you like.

It doesn’t matter where the company is based, but to simplify matters, the most important part of UK employment taxation is: where did the work take place? This is why it’s illegal to work remotely in the UK on a tourist visa as well, as the work taking place can only take place if the worker has the right to work in the UK. Location of the employer, company etc is largely irrelevant (ignoring compliance with uk employment law).

In the gov.uk document I linked (which is the only guidance that you should follow because that is what HMRC follows), it gives examples of when remittance could be used.

I am not a dual qualified accountant but have some insider knowledge of the UK system only .


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Give it a go and see how it works out.

I’d prefer to be taxed on what I spend and not what I earn.  But there are two things in life that are 100% out of my control - death and taxes.

Hope it goes well.

I tried. Just giving you a UK tax perspective.

Also hearing stories from someone you know generally doesn’t give you the complete story of their tax status… or maybe they just haven’t been caught… yet.

Please let us know how it goes! Feel free to give HMRC a ring and ask - we’re friendly folk.


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Experto is now saying that he will form a US LLC, which will bill his US customer. The LLC is a body corporate. It will be controlled by Experto who is a UK resident. Therefore, the LLC is UK resident for tax purposes and liable to UK corporation tax.  Where is this factored into the analysis? Or HMRC might have a look at the transfer of assets abroad rules and directly tax Experto on its income. The transfer of assets abroad are far wider than these words would suggest.

The following document from HMRC covers the Statutory Residence Test with links to other documents to determine Domicile or Non Domicile status. When we first moved back in May of  2016  our dual qualified tax accountant in London said that we could probably claim Non-Dom status for the first, split year we were back but we decided to keep it simple. In our case we still had a home in the USA and intended to keep it available so we could spend a few months each winter, both our children lived in the USA and the bulk of our income, from US pensions, was paid into our USA bank account. We also have retirement and investment accounts with a US brokerage firm.

I would first be very sure that I meet all the Non Dom criteria in these documents before attempting the Non Dom route,  or splash out some money for a one-off consultation with a dual tax professional  to be sure of the interpretation of the rules.


https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3