US citizen running UK PSC: taxes

[lchang]

I have an appointment to speak to a chap in London who is apparently a UK/US tax expert next week...
David Treitel
American Tax Returns - US and UK Tax Experts Tel: 020 8946 0523.

How did your appointment go? Would you recommend the company?

I unfortunately set up my UK LLC years ago without fully understanding the implications. So now I'm looking for an affordable expert to help me sort out UK & US tax issues, especially the US tax filing nightmare.

[jamesbrown]

Direct collection or collection through satr then ensues.

Indeed, it wasn't directed at you; I was just adding some clarity for the OP (who may not be aware of these details).

[ASB]

However, if you're an employee of the US company, and they do not have a taxable presence in the UK, that does not remove the need to operate PAYE in my understanding).

I was not suggesting the potential liability disappears. Simply that an emploer can refuse to operate a paye scheme. Direct collection or collection through satr then ensues. Obviously there may be reliefs in accordance with the dta.

it also used to be the case that ers ni was not due from a non eu employer who had no taxable presence, this may have changed.

[sdt99]

Thanks again for all the input. I'll keep this thread handy when I discuss possibilities with the UK/US tax expert later this week.

[jamesbrown]

I have US clients and it's fundamentally no different than having clients anywhere else (bar insurance). Invoice them directly (in USD or GBP, whatever is agreed). The services are likely outside of the scope of VAT. No need for them to have a UK presence. If you're able, try to agree a contract with jurisdiction and governing law in England and Wales, as that will simplify things (business insurance etc.). Since you're working direct, self-employed status in the UK would also be an option.

However, if you're an employee of the US company, and they do not have a taxable presence in the UK, that does not remove the need to operate PAYE in my understanding, it simply shifts the responsibility to the employee in the UK:

https://www.gov.uk/when-and-how-an-e...loyment-income

This is why many foreign entities might want to operate a UK payroll, to simplify matters for their foreign employees. You could also consider an umbrella arrangement. Thus, it depends on the nature of your working arrangement with the US company. If it's a B2B relationship, this will need to be demonstrable, whether you're self-employed or a company director (IR35 for the latter).

[arby]

Your us employer does not have to establish uk payroll. Hmrc may prefer it but it is not required. There is a load of info as to how this works and how the income is treated on hmrc website.

this might potentially simplify matters both for you and your us employer.

Agreed - I used to work at a US company and some of my colleagues were Americans who had been in the UK for 10+ years and were paid in dollars all the while.

[ASB]

Your us employer does not have to establish uk payroll. Hmrc may prefer it but it is not required. There is a load of info as to how this works and how the income is treated on hmrc website.

this might potentially simplify matters both for you and your us employer.

[sdt99]

Thanks for the advice. I have an appointment to speak to a chap in London who is apparently a UK/US tax expert next week, and my company is looking into the cost of establishing a UK payroll. Hopefully I'll get something worked out.

This is the chap in question

David Treitel

http://www.americantaxreturns.co.uk/

I must admit that it really p*sses me off that corporations can shuffle money around apparently with impunity, but regulatory compliance is so unnecessarily complicated for the peons.

[jamesbrown]

If you open a UK ltd company and are the sole owner you can registered your company as a foreign disregarded entity with the IRS via form 8832. This allows your UK company's income to be treated as your own income by the IRS further allowing you to avoid a US corporate tax return and you are not seen by the IRS as the majority share holder of a foreign corporation. Your US tax return will then only be slightly more complicated than for a "normal" US citizen and you can still claim the foreign earned income exclusion on your UK earnings.

The foreign disregarded entity concept from the IRS seems like a rare moment of tax simplification in the US.

Good point, I recall this election. IIRC, this means that the owner still needs to report the transactions in an aggregated way, but they are reported as their personal transactions alongside their 1040 for each accounting period. So, there are additional forms to file each year (the election, plus the transactions), but that simplifies things quite a bit. In terms of liabilities, though, the issue with the FEIE is that it applies to "earned income", not unearned income and the total exclusion is also fairly small (last time I checked it was around $100k). So, for most contractors, that would be a problem. Anyway, good info., and the above is exactly why the OP should seek advice from the best professional they can afford (this is one area where it's really worth getting things right, as the penalties can be quite high, in theory).

Also, the OP will need to file their FATCA (by July IIRC?) and FBAR (with their tax return) each year; one marginal annoyance here is that some financial accounts do not get the same preferential treatment in the US as the UK (ISA, SIPP etc.).

[arby]

If you open a UK ltd company and are the sole owner you can registered your company as a foreign disregarded entity with the IRS via form 8832. This allows your UK company's income to be treated as your own income by the IRS further allowing you to avoid a US corporate tax return and you are not seen by the IRS as the majority share holder of a foreign corporation. Your US tax return will then only be slightly more complicated than for a "normal" US citizen and you can still claim the foreign earned income exclusion on your UK earnings.

The foreign disregarded entity concept from the IRS seems like a rare moment of tax simplification in the US.

[jamesbrown]

True, but being UK resident I have to pay HMRC taxes, and being a US citizen I have to complete a US tax return (potentially with US tax obligations) each year.

I need to find out a way to do this without either me or my company having to either go through torturous tax filing obligations, or paying onerous, potentially double taxation.

It's pretty simple if I'm PAYE in the UK: I still need to file a US tax return but I will owe little or nothing. My US tax return could be much more complex and potentially much more expensive if I'm contracting / self employed in the UK.

I'm a UK citizen so no problem with rights to live and work in the UK - of course my wife (US citizen) will need a settlement visa, but I can deal with that.

Sorry to hear about your situation.

I can't recommend a specific international tax lawyer/accountant, but most large accounting firms have an international tax department. However, they make regular lawyers look cheap and, for that reason, they're more suited to high net-worth individuals. I expect you're looking for a cheaper option, and you may have better luck asking here:

USA - British Expats

However, you're absolutely correct about this being much more complex for a US citizen contracting in the UK. As a PAYE employee in the UK, you could benefit from the Foreign Earned Income Exclusion when filing in the US, which should make your return pretty simple (depending on your earnings here). There's a dual tax treaty, of course. However, as a director of a foreign company you not only have unearned income (e.g. dividends) to worry about, but minefields like Subpart F income from a Controlled Foreign Corporation (= very expensive tax return). More generally, the post FATCA environment for US citizens living overseas is a lot tougher than it used to be, which is why many US citizens elect to renounce their citizenship when moving permanently. It's certainly do-able if you have the right advice, and tax is just a hassle to overcome, but it would be easier for you as a PAYE employee (or self-employed, which may be a realistic option in your situation). Fortunately, your UK tax return is likely to be much simpler.

[sdt99]

True, but being UK resident I have to pay HMRC taxes, and being a US citizen I have to complete a US tax return (potentially with US tax obligations) each year.

I need to find out a way to do this without either me or my company having to either go through torturous tax filing obligations, or paying onerous, potentially double taxation.

It's pretty simple if I'm PAYE in the UK: I still need to file a US tax return but I will owe little or nothing. My US tax return could be much more complex and potentially much more expensive if I'm contracting / self employed in the UK.

I'm a UK citizen so no problem with rights to live and work in the UK - of course my wife (US citizen) will need a settlement visa, but I can deal with that.

[arby]

Assuming your employer is flexible nothing should prevent them from allowing you to continue to work for them but be located in the UK. Just consider it long distance teleworking.

Otherwise you could move to the UK, open a limited company and have your client be one based in the US.

I assume you have the right to live and work in the UK?

[sdt99]

Are there any US citizens here running personal service companies in the UK and filing UK and US tax returns ?

If so can you recommend someone to get me started who is familiar with US tax filing requirements ? I'm a dual UK/US citizen.

I'm working for a US company (no UK presence) who want me to continue to work for them but I have a terminally ill parent in the UK and I need to move back to the UK asap while finding some way for my company to pay me.

Thanks in advance