UK tax liab for income earned whilst in USA

[adamjtucker]

Hi there

This is pretty complicated and so I'm more than happy to pay for professional advice if anyone has any recommends, but any general advice gratefully received also.

I have been faithfully filing US tax returns on my earned income since I arrived in the US in Nov '05, but have not filed returns with the Inland Revenue in the UK. I know that I need to pull my head out off the sand and not just murmur something about double taxation to my wife whenever she brings it up.

Whilst in the US I have earned a mixture of dividends (from a UK company) and business income from consultancy work I have carried out on my own account. All work has been performed whilst in the US, but paid by UK companies in pounds into a UK bank account.

I'm pretty sure that I am right to have paid US (fed, NYS and NYC - ouch) taxes on all that but want to straighten out whether and how I need to settle up with the UK tax people. I understand that the UK tax liability will depend on whether the income is deemed to have 'arisen' in the UK, but can't find any guidance on the criteria used to draw the line there.

Thanks a ton in advance for any pointers - either tips on the issues themselves, or where to look for a dually qualified UK/US acct.

Cheers

Adam

p.s. great forum. Look forward to chipping in my 2p!

[synthia]

The dividends will be a problem, and you may have incurred fines for not having filed. Tax attorney time.

[Bevdeforges]

Originally Posted by adamjtucker

Hi there
Whilst in the US I have earned a mixture of dividends (from a UK company) and business income from consultancy work I have carried out on my own account. All work has been performed whilst in the US, but paid by UK companies in pounds into a UK bank account.

I'm pretty sure that I am right to have paid US (fed, NYS and NYC - ouch) taxes on all that but want to straighten out whether and how I need to settle up with the UK tax people. I understand that the UK tax liability will depend on whether the income is deemed to have 'arisen' in the UK, but can't find any guidance on the criteria used to draw the line there.

The consultancy work is no problem - for "earned income" it's your country of residence that collects its due, no matter where or in what currency you've been paid.

The dividends will probably cause you some problems, but if you've been declaring them on your US tax returns you probably have a case for a "good faith" misunderstanding. (Plus, the US shares tax return information with governments it has tax treaties with...)

Someone will probably jump in here with experience to share, but on many threads there is mention of filing some sort of paperwork with the Inland Revenue to indicate that you are no longer resident in the UK. If you haven't done this already, you probably ought to start there.

There is a tax treaty between the US and the UK that stipulates who pays what taxes and where. If you're in NYC, you should be able to find a dual-qualified tax accountant - start by checking the British Consulate website. They sometimes offer lists of tax people in the area.
Cheers,
Bev

[adamjtucker]

V. useful feedback, much appreciated.

Adam

[RRY]

Hi Adam,

I’m a dual-qualified UK/US tax accountant from NYC. I recently created a non-profit company to assist expatriates with their taxes.

So, the first thing what we need to do is figure out your residency status for U.K. tax purposes. If you can answer yes to the two questions below, then you will be treated as a non-resident and are not subject to U.K. tax on income earned abroad.

• you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
• your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

You are correct regarding paying U.S. federal and state taxes because you were present in the U.S. since 2005 and as a result automatically became a U.S. resident who has the same tax responsibilities as a U.S. citizen and therefore subjected to pay taxes on your world wide income.

If you’re a non-resident for U.K. tax purposes but the income is paid through a UK agent such as a bank in your case, you must file form PA1 or CA1 to make sure the financial institution doesn’t withhold U.K. taxes at source.

Regarding your dividend income; The U.S. and U.K. have a double taxation treaty which allows you to offset your U.K. dividend tax payable by the amount you paid here. However, you may never reclaim or reduce the 10% tax credit on dividends from U.K. companies.

What I really want to stress is the following; the necessity to file form P85 which is obtained at your local HMRC office. The form is used to determine if you will be a non-resident and to get any tax refund that you are owed. So, if you haven’t filed this form yet, it’s best to do so before you file a U.K return.

Hope this helps,

RRY

[adamjtucker]

Thanks for your clear and concise advice, RRY.

On the basis of your questions I would be a non-resident. Good to know about the dividends (which I have only been receiving in the the 2007-8 UK tax year), and the tax which is currently being withheld from my savings.

I will get moving with the Form P85 and then file returns. I am not confident about getting the return i(and presumably historic returns for 05/06, despite non being 'resident'?) 100% correct in light of the already-filed US returns, so would like to engage a tax accountant to help me. Would your firm be interested in advising me ? If so please let me know and we can discuss nex steps, fees etc. If not, could you recommend anyone else in the NYC area?

Thanks again,

Adam

[RRY]

Adam,

I sent you a PM

R.

[grapeeyes]

Originally Posted by RRY

Hi Adam,

I’m a dual-qualified UK/US tax accountant from NYC. I recently created a non-profit company to assist expatriates with their taxes.

So, the first thing what we need to do is figure out your residency status for U.K. tax purposes. If you can answer yes to the two questions below, then you will be treated as a non-resident and are not subject to U.K. tax on income earned abroad.

• you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
• your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

You are correct regarding paying U.S. federal and state taxes because you were present in the U.S. since 2005 and as a result automatically became a U.S. resident who has the same tax responsibilities as a U.S. citizen and therefore subjected to pay taxes on your world wide income.

If you’re a non-resident for U.K. tax purposes but the income is paid through a UK agent such as a bank in your case, you must file form PA1 or CA1 to make sure the financial institution doesn’t withhold U.K. taxes at source.

Regarding your dividend income; The U.S. and U.K. have a double taxation treaty which allows you to offset your U.K. dividend tax payable by the amount you paid here. However, you may never reclaim or reduce the 10% tax credit on dividends from U.K. companies.

What I really want to stress is the following; the necessity to file form P85 which is obtained at your local HMRC office. The form is used to determine if you will be a non-resident and to get any tax refund that you are owed. So, if you haven’t filed this form yet, it’s best to do so before you file a U.K return.

Hope this helps,

RRY

My husband will be coming to the US soon (as soon as his visa is approved) and we have a bit of a disagreement about whether his US income will be taxed by the UK. He feels that for the first year he will still be considered a resident of the UK because he had earnings in the UK during the fiscal tax year and that they will tax is US income. I do not see how this can be so. Uncle Sam will definitely want their chunk. Will he be liable for taxes on US income from a US company?

Thanks!

[Bevdeforges]

Originally Posted by grapeeyes

My husband will be coming to the US soon (as soon as his visa is approved) and we have a bit of a disagreement about whether his US income will be taxed by the UK. He feels that for the first year he will still be considered a resident of the UK because he had earnings in the UK during the fiscal tax year and that they will tax is US income. I do not see how this can be so. Uncle Sam will definitely want their chunk. Will he be liable for taxes on US income from a US company?

Thanks!

Not entirely sure how the UK handles it, but he will definitely have to report all his worldwide income (UK and US) to the US tax people in that first year. There are tax treaties between the US and UK so he won't be double taxed on either the US or UK income.

He's considered a resident of the US the moment he's admitted on a visa with working privileges. And his US employer will withhold US taxes and the standard withholdings from his US pay.

If you are a US citizen, you have the option of filing jointly only if you elect to treat him as a US resident for the entire tax year. Otherwise, you're going to have to file separately, which can be a disadvantage in some circumstances.

Contact the British Consulate to see what tax information they have available for British citizens in the US. (Don't try to get tax information by phone - it's usually best to check their website and see what they have available either on the site or in published form you can order or download.)
Cheers,
Bev

[grapeeyes]

Originally Posted by Bevdeforges

Not entirely sure how the UK handles it, but he will definitely have to report all his worldwide income (UK and US) to the US tax people in that first year. There are tax treaties between the US and UK so he won't be double taxed on either the US or UK income.

He's considered a resident of the US the moment he's admitted on a visa with working privileges. And his US employer will withhold US taxes and the standard withholdings from his US pay.

If you are a US citizen, you have the option of filing jointly only if you elect to treat him as a US resident for the entire tax year. Otherwise, you're going to have to file separately, which can be a disadvantage in some circumstances.

Contact the British Consulate to see what tax information they have available for British citizens in the US. (Don't try to get tax information by phone - it's usually best to check their website and see what they have available either on the site or in published form you can order or download.)
Cheers,
Bev

Thank you so much Bev. We have the I 130 approved, now waiting on the rest to be processed and sent to the embassy in London, then they should give him his green card. I will definitely check out the tax information on the British Consulate site. We also plan on hiring an accountant to handle the first year, just need to find one that is knowledgeable in world income. Thank you again!