Living in UK getting paid by US company

[peewee2008]

Hi All,

I have an opportunity to move from the US to the UK to be closer to friends and family.

I work for an IT company based in Texas in the US. Since I work from home my boss is prepared to keep me on and pay my salary into my UK bank account.

There is a problem however as US companies are not allowed to pay salaries outside the country unless the company has established offices and is trading in the destination country.
Since our business does not have any British clients there is no way that the company will pay or want to open a company in the UK. I don’t have a US or British citizenship, but I do have an EU passport so working in the UK will not be a problem.

The only solution to this problem is for me to find a contracting company that deals with both the US and UK and get them US company to hire me as a contractor from the UK branch.

Has anybody else had this kind of problem or heard of this being done?

Thanks

[Bevdeforges]

I'm not sure if it will help, but you might ask your employer to contact the UK branch of a big payroll company like ADP. If there is a way to do something like that, they might know of it.
Cheers,
Bev

[marcusb]

Originally Posted by peewee2008

Hi All,

I have an opportunity to move from the US to the UK to be closer to friends and family.

I work for an IT company based in Texas in the US. Since I work from home my boss is prepared to keep me on and pay my salary into my UK bank account.

There is a problem however as US companies are not allowed to pay salaries outside the country unless the company has established offices and is trading in the destination country.
Since our business does not have any British clients there is no way that the company will pay or want to open a company in the UK. I don’t have a US or British citizenship, but I do have an EU passport so working in the UK will not be a problem.

The only solution to this problem is for me to find a contracting company that deals with both the US and UK and get them US company to hire me as a contractor from the UK branch.

Has anybody else had this kind of problem or heard of this being done?

Thanks

Apologies in advance because whilst I have some understanding of UK tax, the US stuff eludes me.

As far as UK is concerned you have to pay tax in the UK if you are resident and the work is performed in the UK. Residency is generally down to how long you spend in the country - 182 days out of any 365. Whether you are performing the work in UK when you are a US citizen on EU passport working for US company is a bit tricky. A good UK tax specialist would help you there - pm me if you would like the details of one.

Even if you were payrolled through UK, arent you as a US citizen still liable for US tax on any earnings? As UK tax system is a bit more liberal than USA, you would have to pay some top up on US tax?

So isnt it better to just live in UK but still be paid into your USA bank account by US employer? You'd have to transfer money back and forth, but your tax situation would be quite simple. And you could claim some travel, subsistence and relocation expenses against your US tax returns?

[Bevdeforges]

Originally Posted by marcusb

So isnt it better to just live in UK but still be paid into your USA bank account by US employer? You'd have to transfer money back and forth, but your tax situation would be quite simple. And you could claim some travel, subsistence and relocation expenses against your US tax returns?

You're right that, as a US citizen, the OP would still have to file US tax returns - but if s/he is resident in the UK, the salary earned there is excludable to a certain extent for US taxes, and any salary above and beyond the exclusion limit is subject to an "foreign tax credit" for taxes paid to the UK. Being paid into a US bank account does not alleviate the need to pay UK taxes if the work is being performed in the UK by a UK resident.

It sounds as if the OP's only option is to work as a contractor in the UK, which means setting up his own company and billing his salary back to his "employer" in the US. (Be careful with this, though, because you may have VAT to deal with.)
Cheers,
Bev

[marcusb]

Originally Posted by Bevdeforges

Being paid into a US bank account does not alleviate the need to pay UK taxes if the work is being performed in the UK by a UK resident.

It sounds as if the OP's only option is to work as a contractor in the UK, which means setting up his own company and billing his salary back to his "employer" in the US. (Be careful with this, though, because you may have VAT to deal with.)
Cheers,
Bev

Hi Bev,

Thats interesting. I thought that US citizens were basically subject to US taxes worldwide? And if they paid less tax in their country of work as opposed to USA dont they have to make up the difference?

i.e if they earnt $100 000 in USA they would pay $47000 tax
Candidate A earns $100 000 in UK and pays $40k tax in UK

Doesn't Candidate A get US tax credit for $40k but then have to pay a further $7k to the IRS? Do you get benefits in claimable expenses whilst overseas like flights/accomodation/subsistence?

The companies I use for financial management in UK have always been scared of dealing with US clients because of these complications. I'm really interested to know how it works.

[Bevdeforges]

You're right in that US citizens always have to file taxes based on their worldwide income, though that doesn't exempt them from filing local tax returns when they are resident overseas. There is an "overseas earned income exclusion" available up to a certain amount of income, and if a US citizen (or green card holder) has more earned income than that, there's the overseas housing allowance and then a foreign tax credit for taxes paid overseas.

The difference between the tax rates in the US and in the home country only really come into play if the person's income puts them into the foreign tax credit category. Or if they have "unearned" income (i.e. almost anything other than salary) that has a different tax status between the two countries.

Your "financial management firms" don't seem to know much about international taxes, I must say. This is pretty basic stuff for those who handle visa applications and expat workers.
Cheers,
Bev

[marcusb]

You're right - I think they were doing too good business just dealing with Antipodeans that they didn't make the effort. I've done some research as well and spoken to a US accountant which confirms what you said:

The foreign earned income exclusion is currently around $86,000 per annum.
To claim it, you must be on overseas assignment at least 1 year though you don't have to be assigned to the same foreign country for that period. In that 1 year period, you must not spend more than 35 days back in the USA including dates of arrival and departure.

In addition, you can claim foreign tax credit for any foreign income taxes paid. There is also the possibility of tax relief for foreign housing expenses. In effect you'd need to earn around US$200k or more to be liable for US tax.

And if you have no U.S. source income, you should not have any U.S. Federal income taxes to pay now regardless of income level although you still need to file a Federal Income Tax Return.

One additional thing he mentioned:
If you don't pay any social security as a self-employed person in the foreign country you may still be liable to US social security at around 15%. This may be tax deductible on your returns in the foreign country.

[Bevdeforges]

Originally Posted by marcusb

One additional thing he mentioned:
If you don't pay any social security as a self-employed person in the foreign country you may still be liable to US social security at around 15%. This may be tax deductible on your returns in the foreign country.

A couple caveats here:

What the US calls "social security" is only a state retirement benefit system. In most other countries I know of "social security" is the state health care system and other benefits, including retirement. The difference in definition causes no end of misunderstandings.

The other thing is that the notion of "self-employed person" varies greatly from country to country. If you are working in and resident in a country and not paying into the "social security" system there (however defined), I would be very wary of your legal status. Most forms of "self employment" require some form of contribution to the local social insurances scheme, and if you're not paying in, you may not be legal. (There is also local VAT to consider - often a much bigger deal than income tax.)
Cheers,
Bev

[kaz101]

Hi peewee2008,

You could have your own Ltd company in the UK and contract for your US company.
Take a look at the PCG website since there are special tax laws regarding IT companies with limited clients. The PCG keep contractors in the know, have special tax investigation insurance and also keep lobbying parliament about fairer treatment for IT contractors. I was a member for years when I was an IT contractor in the UK.

Bev mentioned VAT - you shouldn't have to charge VAT since your client would be outside the UK. You can check this is still the case but that's how it worked a few years ago when I was an IT contractor with a client in the Netherlands.

Regards,
Karen

[marcusb]

Originally Posted by Bevdeforges

A couple caveats here:
What the US calls "social security" is only a state retirement benefit system. In most other countries I know of "social security" is the state health care system and other benefits, including retirement. The difference in definition causes no end of misunderstandings.

The other thing is that the notion of "self-employed person" varies greatly from country to country. If you are working in and resident in a country and not paying into the "social security" system there (however defined), I would be very wary of your legal status. Most forms of "self employment" require some form of contribution to the local social insurances scheme, and if you're not paying in, you may not be legal. (There is also local VAT to consider - often a much bigger deal than income tax.)
Cheers,
Bev

Very good clarification. I've learnt alot about US expat tax these last 2 days from your site. Many thanks!!
Marcus