I am thinking about setting up a US LLC or Corporation and a US bank account as I will be setting up a business which will predominantly do trade in the US.
I have been advised by a US accountant that as a non-resident, I would need to pay US tax on the income and submit US tax returns. How would I claim relief in the UK for this income so that I do not pay double tax?
If I set up an LLC, the tax is treated as a Partnership so effectively. In this situation for my UK status, would I need to register with HMRC as self-employed and pay NIC?
If I set up as a Corporation in the US, this is the equivalent to a Ltd Company in the UK so if I do this, would I be employed rather than self-employed in the UK? What happens in terms of paying NIC with this scenario.
In addition, my business partner is a US national who is living in the UK and has been advised that he can pay tax in the UK and claim tax relief in the US through US tax returns. What would he need to do in the UK with HMRC in both scenarios (if we trade as a US LLC or a Corporation)?
Yes you would and of course UK tax as well as you are based in the UK and any USA tax suffered you could claim against the UK tax position as we have a double taxation treaty with the USA
You would be treated as an employee
To clarify, are you saying I would be classed as employed rather than self-employed?
Is this the same if the US business is set up as either an LLC or Corporation?
If I am treated as employed rather than self-employed, how do I pay NIC as my tax would be paid in the US and not the UK.
As I understand it, I would only register with the HMRC if I am self-employed (such as sole trader/partnership). Is that right? So would I only need to register to pay NIC?
How would the tax paid in the US be offset through my UK Tax Return, is there a particular section to complete please?
Yes you would - an employee of this USA company however it is set up from a UK perspective = you would need to set up a direct employer scheme (so a proxy UK employer) so that your tax and National Insurance were deducted each time you were paid - and this you would then pay over to HMRC.
Its unlikely HMRC would allow an NIC only scheme as you are in the UK and carry out all your duties in the UK
At the year send (UK) then if you have suffered personal tax in the USA (rather than company business tax) then you could have this offset against your UK tax suffered - which would create a tax refund, but you would be better asking the USA to not deduct employee tax as you will not be resident there and your tax obligations as an individual will always fall into the UK - for this you would need to recheck with the USA accountant as his advsie is not correct - he should be advising you to complete a W-8EN as an alien to the USA and can have reduced/exempt tax (as an individual) - and I am shocked he has not advised you correctly!
Thanks Sam, I did check this with the US accountant when he told me that I would be taxed in the US as this didn't sound right, especially when I live in the UK and am a UK citizen.
He advised that my taxes due would be held by the company to then be paid to the IRS through submitting an annual US tax return.
He said of the LLC that is formed....that 'A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.
This would be a US partnership so yes, all partners are subject to US tax and reporting on their share.
The tax is withheld by the partnership (whoever does the accounting). He has to get a tax number (an ITIN).
It does not matter that he is not a US citizen. An ITIN is for those that have a US tax reporting obligation but cannot be issued an SSN.'
So from what you have advised, I will be able to complete a W8EN form to have tax exempt and pay UK tax instead?
Thanks for your response
Yes I agree that the company's tax return remittance will pass through the USA tax system as this is where the company trades but there is exemption for non resident individuals, and I would therefore go back to the USA accountant to explore this ( I am sure you can appreciate we are UK tax experts)
But as you will reside and work from the Uk you will have a UK tax position to answer and pay - so if its at all possible to exempt you as an individual from the USA then that is the most tax effective way to proceed as you have no choice about your UK tax position.
I'm glad you raised this as I queried this with the US accountant and he advised that if I set up a Corporation, I can pay tax in the UK and complete the W8 form!! He should have told me this as I did originally ask him about the options of setting up a business so that I could receive income and pay tax in the UK!
So on this basis, you mentioned that I would need to set up a direct employer scheme that would deduct tax and NIC when the company pays the salary.
Is this similar to PAYE so I pay monthly tax rather than have to declare and pay tax through the annual personal tax return?
So would I be classed as employed rather than self-employed?
I am glad you now have the correct confirmed information!
Yes the direct schemes are where, in the absence of an actual UK based employer, you as proxy run your pay through a payroll - so that the deductions for tax and National Insurance are made.(so yes similar to PAYE)
I would advsie that as a USA corporation that you are employed not self employed - and this will ensure life is kept simpler here in the UK with all the appropriate tax deductions - because if you are self employed then all the business profits and expenses will also need to be run through the UK as you are resident - and I am not an expert is how USA businesses run but I would imagine you will draw a salary rather than all the business profits - is this right?
If so then you are an employee and then just declare the pay you bring into the UK and then PAYE (direct scheme) ensures the appropriate UK deductions needed.
Do let me know if I can assist furtehr, but if you have all that you need, then it would be appreciated if you could rate me for the level of service I have provided (or click accept)
Thank you Sam you have been very helpful.
Yes, you are correct about the salary - if I set up a Corporation (equivalent to UK Ltd Company) then we will be drawing a salary and if there is any remaining profit, that will be paid as dividends.
To clarify about the proxy set up of the pay roll, is this something that any accountant that deals with general payroll can set up for me or is it a specialist service that requires a specific type of accountant? Or something I need to register myself with the HMRC? (just so I know where to start looking...)
For my personal tax return for HMRC, would I complete the employed section just as I normally would?
Thank you again.
Thanks for your furtehr questions
Then you need an employer scheme to run the salary through the UK payroll, and just keep a note of dividends which you need to declare if HMRC deem you to need self assessment tax returns each year (if your total income will be in excess of £43,000 a year as you then breach into the 40% tax rate band)
You can register the direct scheme yourself and run payroll your self - but you can ask a payroll bureau or accountant to run the payroll side of matters for you (this is something most accountants do - I certainly provide this service to clients)
But to register as an employer as a direct scheme link here - where you can set yourself up as a new employer
Then they wills end you information as to how to operate payroll and the Employer PAYE reference number and Accounts Office reference Number (for payments to HMRC) and at this time you can choose whether you wish to get someone to run this for you, or you manage yourself or you could always come back to Just Answer for the first few payroll runs (and we offer a telephone support service ) to get you started - and if you would prefer me to assist with this, then you can just send a request asking for me - and I can then send you a telephone request (there is an additional charge - but cheaper than payroll services !)
Let me know if I can assist further or if you have all that you need, then it would be appreciated if you could rate me for the level of service I have provided (or click accept)