IT contractor living in US working for UK company - how to get paid?

[tumnus]

Hi!

I'm a green card holder, just moved to the US (wife is American). Before I left the UK my permanent employer offered to retain my services as a computer developer on contract so I set myself up with a UK contractor agency they had already credit checked and then I moved. For the past 3 months I have been working remotely from Florida for my former employer and never intend to go back to the UK on business as I can do everything from home. The agency has been paying into my UK account and I have been wiring the money over since. However, the agency is now saying that they cannot keep doing this past April due to some tax issue.

Does anyone know of any problems with this arrangement? I am genuinely a permanent resident of America so long term at least I am not too worried about my own taxes. I filed my P85 form with HMRC in the UK to inform them of my emigration so I should be going on to the "No Tax" (NT) code at some point and hence only have to pay taxes here in the US. Currently I am still on my old tax code so the agency is taking tax out through PAYE and it will be interesting to see if I get that refunded when I go on the NT code but that is a separate issue.

If the UK agency genuinely/legally cannot keep me on their books past April what other options are there for getting paid by a UK-only company while residing in the US? Especially in the current climate and the fact that it is a lucrative and interesting contract I do not want to give it up.

Thanks in advance.

Colin

[Bevdeforges]

Hi and welcome to the forum.

Basically, you are working as an "independent contractor" in the US and you need to be handling your own payroll and income taxes. The easiest way to do this is for you to invoice the company in the UK for the work you do (you can invoice them in either US$ or sterling - depends how they are able to pay).

You will need to contact the state tax authorities in Florida to see what state taxes you are subject to as a self-employed individual and you'll probably wind up having to file quarterly estimated taxes to the federal government.

Just as a rule of thumb, most people who switch over to being self-employed like this find that they need to increase the amount they are being paid by their "customer" to cover the various costs of being in business for themselves. The old rule of thumb (from several years ago) was that you generally need to bill about twice your old salary to break even - though obviously it depends on what sort of business you're in. You're entitled to deduct all your costs of doing business (paper, pencils, filing fees, transportation, insurance, accountantcy and legal fees, etc.) from your income from the business.

You might want to contact something like the Small Business Administration (a government agency - http://www.sba.gov/) in your area to get some help in setting up your business and handling the administrative side of things. Be sure to check the "Local Resources" section for a program called SCORE, where you can be connected with a retired business person to help you get your business organized.
Cheers,
Bev

[tumnus]

Thanks for all that. I was wondering about becoming self-employed but from the IRS definition of self-employed it is not clear if I can claim that.

I don't think I pass rules 1 and 2 from the IRS definition of self-employed (from their website) since I report to a team leader who tells me when to work and what to work on and I work on a laptop with software all provided by the company as well.

I also wouldn't have a clue about how I would actually invoice them and receive the payment but I guess the SBA or even the company's Finance department might be able to help with that one. I guess the whole prospect of the administration work is daunting. For instance the company usually requires the companies that they pay to be credit checked.

I was also wondering about using a payroll company that takes on individuals. I was always a permanent employee in the UK so I never had to use the 'umbrella' companies over there, but as I understand it some of these payroll companies here in the US act in the same way by taking away the hassle of being self employed and invoicing clients and managing taxes for a small fee. Would this be an option?

Thanks again for all the advice

[Bevdeforges]

The IRS rules regarding "self-employment" are directed toward an old trick of the high tech companies - namely that of making all their employees "contractors" in order to avoid paying their share of the payroll taxes. In your case, unless your UK employer has a US company they can pay you through (and make those payroll tax payments), self-employment is about your only option.

Do try to contact the SBA to see what they can do for you. I'm not aware of payroll companies that will handle all your "paperwork" like that, but you may be able to enlist the services of an accountant or accounting service. Enrolled agents (meaning that they are enrolled with the IRS to handle tax matters) are sometimes a more economical option. But in any event, there's a certain level of day to day record keeping you'll have to take on yourself.
Cheers,
Bev