Dual citizen who works remotely?

[new2edinburgh]

I'm a dual citizen (American and British) who works remotely as part of an American tech startup. Right now I'm just a standard American W2 employee. I want to move to the UK but I plan on keeping my job. As far as everyone else in the company is concerned, nothing changes except for the way accounting handles me. Also as a dual citizen visas don't matter. What I'm wondering is what my new employment contract should look like and what I have to do?

Also, in America I'm able to deduct half of my utilities and internet bill from my taxes as well as part of my rent (based on the square footage of my office as a percentage of the total). Will I be able to do the same in the UK?

[stek]

Afaik, no deductions whatsoever as an employee apart from the 4 quid a week for extra leccy consumed by utilities by your laptop etc...

[Bellona]

Hi, and welcome.
When I started up my accountant advised me that for payments of up to £4.00 per week, or £18 per month for monthly paid employees, you don’t need to provide any records of the household expenses you’re claiming for.

For amounts above £4.00 you will need supporting evidence to show that the amount you are claiming is no more than the additional household expenses you have actually incurred.
If you work from home, you are able to claim back on your associated utility bills, like gas, electric, water, mortgage or rent, by the percentage of your home that is your designated office space.

For example if you have a 5,000 square foot home of which 500 square foot is an office, you are able to claim 10% on your appropriate bills as a tax-deductible expense.
I don’t work from home permanently, so a further calculation of the time spent would need to be done.
You will need to submit supporting documentation ( bills etc)

For me, the additional paperwork and aggro is not worth the effort so I opt for the easy out at £18 a month.
I’m sure one the accountancy poster will pop along and give you a more technically accurate overview.

HTH

[new2edinburgh]

Afaik, no deductions whatsoever as an employee apart from the 4 quid a week for extra leccy consumed by utilities by your laptop etc...

I had a feeling the tax system was going to be stricter in the UK but I'm more concerned with how I get paid and my legal relationship with my company. The umbrella companies all seem to be geared towards contractors, which I'm not really. I'm still going to make my regular salary and take my regular vacation days and so on. I know I technically wouldn't have a legal right to things like vacation days, by as an American employee I already don't have a legal right to any employee protection or benefits!

I guess the better question is how can an American company employ someone in the UK without registering there? Is it a lot of work to establish a UK branch for an American company? I assumed for my < 20 person startup that the trouble of doing that would far out way the trouble of me setting up a limited or going through an umbrella. I also assumed that remaining as an American employee and doing periodic bank transfers from the US to the UK would be out of the question. I own property in both countries so my status as a resident isn't an issue.

[Jessica@WhiteFieldTax]

I don't think it would be that difficult for the start up to get a payroll running in this country, I've done this before for overseas employers with one person in Uk.

Practicalities:
~ many accountants PI doesn't let them touch US clients and/or they wouldn't want to.
~ as well as setting up a payroll startup may need to consider employers liability insurance in UK and employment contract under employment law

That lot may make it unattractive.

In which case umbrella or yourco could be the route, but these are different vehicles, so you need to model your take home position, and startup needs to consider its compliance in US.

Finally as dual citizen, remember you still need to file personal taxes in US on worldwide income, even if you are not resident. Set off for tax paid in UK of course.

Again, I've done thus type if structure for people, but it needs bespoke discussion and advice.

[jamesbrown]

A UK umbrella company probably isn't going to be an option for handling payments from a US company (I'm not aware of any that will do this). You will need a UK payroll to avoid having deductions at source and I don't believe that a US company will be able to pay you, legally, without a UK payroll in place (secondment to a UK branch of your employer would be the typical scenario, but this doesn't apply in your case).

Working through a UK Ltd. is perfectly possible, but you will have significant administrative and financial overheads (e.g. in terms of PI insurance) and you won't have any benefits of employment, of course (for what they would be worth in your scenario, which isn't much). Overall, it won't be an ideal arrangement for you because you're not really a contractor and you would also be taxed punitively in the UK (look up IR35, but this isn't really your main issue).

As a US citizen, there are some obstacles with being a director of a foreign corporation, both financial and procedural (in terms of the complexity and cost of filing with the IRS). Of course, you will be liable for US taxes on your worldwide income. In general, these things balance out through the mechanisms in place to avoid double taxation (the US-UK double taxation treaty), but the rules in the US for taxing unearned income (e.g. dividends) are unfavorable. It's worth doing some reading about the Foreign Earned Income Exclusion, which was designed for US citizens working overseas, but note the word "Earned" in this context. There are other differences in tax treatments (e.g. of tax-free pensions and savings).

I would entirely echo Jessica's comment about soliciting expert advice from a tax expert familiar with the US and the UK. Ideally, you want someone that can also provide more general advice about your arrangements.

[ASB]

Why not just declare the us income on the appropriate part of your uk tax return?

Provided the us co is paying you in accordance with their regs why should they give a flying fig about what happens in the uk?

Whether you are rsesident for taxes in the us is dependant upon the facts of your case, though I would imagine there is no escape from federal taxes.

I dont see why the company should be forced to establish a branch and/or payroll in the uk. Unless it wants to.

There is a load of guidance on the hmrc website for employees of foreign companies.

[jamesbrown]

Why not just declare the us income on the appropriate part of your uk tax return?

This isn't a problem concerning how to pay tax in the UK, it's about the appropriate structure to work for the US company given that the OP is an employee but the US company does not have a UK presence and payroll.

Provided the us co is paying you in accordance with their regs why should they give a flying fig about what happens in the uk?

Whether the US company realizes it or not, they don't want to get into a situation where they have a UK employee without a UK payroll. A US company that takes legal advice (and they may not) won't touch it. They cannot just pay out a gross salary to the OPs personal bank account in the US or UK and forget about it because they are an employer with an employee in the UK, subject to UK deductions.

Whether you are rsesident for taxes in the us is dependant upon the facts of your case, though I would imagine there is no escape from federal taxes.

Residency status aside, a US citizen pays tax on their worldwide income. However, US citizens are generally eligible for a Foreign Earned Income Exclusion, which greatly simplifies reporting, and potentially also allows for the deduction of certain foreign housing costs (IIRC). The issue of mitigating double taxation is, again, not the main issue here.

I dont see why the company should be forced to establish a branch and/or payroll in the uk. Unless it wants to.

If it wants to pay an employee in the UK, the relevant requirements are to have a UK payroll. More importantly, the OP does not want unlimited liability when things go pear-shaped, especially with a US company involved.

[ASB]

If it wants to pay an employee in the UK, the relevant requirements are to have a UK payroll. More importantly, the OP does not want unlimited liability when things go pear-shaped, especially with a US company involved.

Can you point to any guidance that states that? I agree that HMRC would like an overseas employer to operate PAYE for UK based employees, but they cannot necessarily force that in all cases.

I am NOT saying they can just pay them gross (i.e. no deductions anywhere) and be done with it. I was saying that in the absence of a taxable presence in the UK (which may or may not be the case for the actual employer) then declaring the income through an SA return is an option.

I was saying they are not mandated to have a UK branch or presence, or operate a UK payroll in order to have an employee who is physically located in the UK.

For example here is some guidance for UK based employees of an overseas company which does not have a UK presence (yes it concentrates on diplomatic staff but covers other possibilities). This is for NI of course.

National Insurance for people in the UK working where there is no employer in the UK

And some areas of taxation.

PAYE81500 - PAYE operation: international employments: contents
PAYE81610 - PAYE operation: international employments: employers ?presence in UK?
PAYE75040 - PAYE operation: PAYE direct payment: when to use PAYE direct payment arrangement

Thus it is possible for there to be no employer for PAYE purposes.

Doesn't make the tax due go away of course.

Edit: tax either in the US or UK of course. Some credit for US taxes would be obtained through the DTA.

[jamesbrown]

Can you point to any guidance that states that? I agree that HMRC would like an overseas employer to operate PAYE for UK based employees, but they cannot necessarily force that in all cases.

I am NOT saying they can just pay them gross (i.e. no deductions anywhere) and be done with it. I was saying that in the absence of a taxable presence in the UK (which may or may not be the case for the actual employer) then declaring the income through an SA return is an option.

I was saying they are not mandated to have a UK branch or presence, or operate a UK payroll in order to have an employee who is physically located in the UK.

For example here is some guidance for UK based employees of an overseas company which does not have a UK presence (yes it concentrates on diplomatic staff but covers other possibilities). This is for NI of course.

National Insurance for people in the UK working where there is no employer in the UK

And some areas of taxation.

PAYE81500 - PAYE operation: international employments: contents
PAYE81610 - PAYE operation: international employments: employers ?presence in UK?
PAYE75040 - PAYE operation: PAYE direct payment: when to use PAYE direct payment arrangement

Thus it is possible for there to be no employer for PAYE purposes.

Doesn't make the tax due go away of course.

Edit: tax either in the US or UK of course. Some credit for US taxes would be obtained through the DTA.

Declaring the income through a SA is the responsibility of the UK tax payer in a self-employed scenario and this is perfectly fine, of course. However, let's not overlook the issue of unlimited liability when working on a self-employed basis and the litigious nature of the US market (hence the extreme costs of PI insurance, for example), which makes a self-employed status highly unattractive IMHO.

I think the main issue, from a compliance perspective, is not with the OP but with the US company and this is a complex area, with implications both in the US and the UK. In other words, if the US company is sensible, they probably will not want to work through this minefield in practice. The ordinary solution would be to have a secondment to a UK branch of the same company, in which case there are no issues. Otherwise, there are withholding and reporting requirements in the US. For example, US employers are required to withhold income taxes on wages paid to US citizens even if the income is foreign source. With a sole trader/sole proprietor scenario there are always risks of "self-employment" being interpreted as employment, which is exactly what the OP is describing afterall. For payments direct to US citizens/residents overseas, there are regulations governing documentation of status and reporting (W-9 for US persons/W-8BEN for non-US persons) and, in my understanding, severe liabilities on the employer for failing to do so. In contrast, foreign source income paid to a non-US person is not subject to reporting or withholding requirements.

Bottom line, I'm just coming at this from the perspective of an experienced lay person. I work with US clients regularly, and I'm not aware of any that would get into the sort of arrangement that you're describing (quite apart from the negatives from the OPs perspective of having unlimited liability). I would strongly recommend that the OP solicit professional advice because it's a very complicated area. Subsequently, it would be great if the OP could report back for the benefit of others.