US tax filing requirements for UK Ltd Company
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  1. #1

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    Default US tax filing requirements for UK Ltd Company

    Hi,

    My wife and I currently live in New York but will be relocating to the UK shortly. She wishes to continue working for her advertising agency remotely so has set up a UK Ltd Company to undertake contracting work. Work will only be undertaken remotely from the UK.

    If she completes a W8-BEN-E to avoid withholding tax, given the taxation treaty between the UK and US, could anyone tell me whether her Ltd Co will still have to file a US tax return with the IRS? For context, she will be paid $7K per month for 3 months.

    And if she allowed withholding tax at 30%, would she have to file a US tax return with the IRS?

    And one further question: noting it will be less effective in reducing the tax paid, is she required by HMRC to pay herself a salary from her UK Ltd Co or could she simply pay the appropriate corporate tax and distribute the small balance in the form of dividends? Therefore avoiding the admin required for national insurance payment . We are just trying to keep it as simple as possible.

    Any advice would be gratefully received.

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    Prof Cunning @ Oxford Uni

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    Regarding how your wife gets money out of her UK limited company and the tax/NICs, your UK accountant will be able to sort that out for you.

    On your first part, is the company she works for based in the US?
    Is the contract she has with them specifying she will be paid from the US?
    Is she a US or British citizen?
    Can your US accountant give you advice on US taxes?
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    I believe that all US citizens have to file a US tax return, and pay US tax on their income wherever they are. Military personnel excluded.
    So you will need accountants at both ends I believe.
    See the accountant recommendation thread on this board.
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    Quote Originally Posted by Jonathan9528 View Post
    Hi,

    My wife and I currently live in New York but will be relocating to the UK shortly. She wishes to continue working for her advertising agency remotely so has set up a UK Ltd Company to undertake contracting work. Work will only be undertaken remotely from the UK.

    If she completes a W8-BEN-E to avoid withholding tax, given the taxation treaty between the UK and US, could anyone tell me whether her Ltd Co will still have to file a US tax return with the IRS? For context, she will be paid $7K per month for 3 months.

    And if she allowed withholding tax at 30%, would she have to file a US tax return with the IRS?

    And one further question: noting it will be less effective in reducing the tax paid, is she required by HMRC to pay herself a salary from her UK Ltd Co or could she simply pay the appropriate corporate tax and distribute the small balance in the form of dividends? Therefore avoiding the admin required for national insurance payment . We are just trying to keep it as simple as possible.

    Any advice would be gratefully received.
    If your wife is working through her UK Ltd company when based in the UK then it will only need to file UK corp tax returns. Your wife's personal position is a little different and any personal income (salary/dividends) declared to the IRS on a personal return even if resident in the UK at the time....as to where it is taxed will depend on her tax residency and suggest you speak to an accountant. Our tax partner is also CPA qualified in the US as well as UK ICAEW qualified as we deal with a few guys in the States so if need to chat, feel free to PM.....suspect a few of the other guys on here have experience dealing with the US/IRS as well
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    Quote Originally Posted by Jonathan9528 View Post
    She wishes to continue working for her advertising agency remotely so has set up a UK Ltd Company to undertake contracting work. Work will only be undertaken remotely from the UK.
    Probably a very low risk, but this scenario could be perceived as being within IR35 - the good old "Friday to Monday" aspect. IR35 can potentially apply to non-UK clients such as the US-based advertising agency. That would affect your wife's ability to avoid paying salary and NI contributions.

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    Thanks everyone for the quick responses. To answer some of the questions:

    1. She is a British citizen;
    2. The company she will work for is based only in the US;
    3. She will be paid in USD into a GBP bank account in the U.K. in the name of her UK Ltd Co;
    4. I believe I'm aware of the risk it could be perceived as falling foul of IR35.

    Could anyone opine on whether the fact the income is US source will require her UK Ltd Co to file a US tax return with the IRS? I have seen references on various sites to the concept of Permenant Establishment and that perhaps if she doesn't have this in the US, it negates the need for a tax return?

    Many thanks

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    Sounds like the mandatory tax filing for US citizens will not be required. But now you're taking about an export business. Find a good UK accountant.
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    Quote Originally Posted by Jonathan9528 View Post
    Thanks everyone for the quick responses. To answer some of the questions:

    1. She is a British citizen;
    2. The company she will work for is based only in the US;
    3. She will be paid in USD into a GBP bank account in the U.K. in the name of her UK Ltd Co;
    4. I believe I'm aware of the risk it could be perceived as falling foul of IR35.

    Could anyone opine on whether the fact the income is US source will require her UK Ltd Co to file a US tax return with the IRS? I have seen references on various sites to the concept of Permenant Establishment and that perhaps if she doesn't have this in the US, it negates the need for a tax return?

    Many thanks
    She is exporting services from the uk so as she is a uk citizen itís not an issue (if she was a us citizen then it would be fun for levels of fun you donít want to imagine).

    The use of a uk limited company should make things easier for everyone involved but remember itís only s starting point finding a uk customer or 2 will make things far easier
    merely at clientco for the entertainment

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    First, having a US client does not mean that your company has to file any US tax returns.

    Second, if your wife is living and working in NY she will be a "US person." A "US person" has to file a personal US tax return. So you will definitely have to file a personal tax return for the year in which you return. Presumably she has immigration status that allows her to work there. If she retains that status, she may continue to be a "US person" (check out IRS Publication 519 as the first place to start, look especially for instructions for Nonresident Aliens) even after you return, and so have to continue to file US returns. If she renounces that status, she will still be able to provide services to a US company, but she would generally be unable to go there to do so. So it may be worth retaining her status.

    Third, if your wife has to file a personal US tax return, and she incorporates here, she may fall afoul of the Controlled Foreign Corporation (CFC) regulations, and so need to file Form 5471, if she owns / controls a non-US corporation. She will therefore want to take advice from a US tax adviser from the very start on whether or not she should file an election as a disregarded entity. This would allow her to treat the company as self-employment for US tax purposes and take corporation tax as a foreign tax credit on her US return, and not have to file 5471.

    If she will only have to file her US taxes for this year, it is probably worth considering operating as a sole trader (self-employed) until the end of December. That way, there would be no CFC while she is under US tax requirements, so no need to file an election, no 5471, no US hassles. She'd just report income and expenses on Schedule C or Schedule C (EZ). She could then incorporate in the UK as of 1/1/2018.

    US tax advisers in the UK are expensive. They also at times give wildly varied advice, and it is hard to know who is right.

    If your wife is going to have to continue to file in the US after this year, you might do well to find someone in NY who is knowledgeable about CFCs, Nonresident Alien tax reporting, etc. Try to get a recommendation from someone you trust. It's easy for someone unscrupulous to take advantage of Nonresident Aliens by telling them they have to file a bunch of extra forms which the adviser will gladly prepare for them at a hefty fee. If I were looking for an adviser I'd read them this paragraph, tell them you'd like to trust them but don't want to be a mug, and ask them how you can know that they are giving you good advice and not taking advantage of you. It's part of their job to earn your trust, and I'd want them to know it has to be earned, it won't just be given.

    This post discussed a US citizen contracting in the UK. Some of it will probably apply to your wife if she continues to be a "US person" -- how much, I don't know. Probably worth reading in your case, especially if she's going to have to continue to file US taxes.

    Perhaps more directly relevant is this discussion, which started by asking about VAT but covered other things. Definitely worth a read through, I'd say.

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