hh619

Hi,

Just another quick question:

If I’m getting paid by a UK company whilst in the process of opening up in the US. How does this work? Will there be 2 x taxation? I’m really not sure how to find the relevant information for this one. I would open a US bank account, but how would I start paying taxes in the US? This is automatically taken care of in the UK.

Also, let’s say for example I’d be paid £60,000 whilst working in the US. This converts to approx. $77,174 at today’s rates. Am I right to assume there will also be deductions for converting the money.

Apologies if these are daft questions!

yellowroom

A hugely simplified overview:

Your salary is taxed at source, whatever the country. Sso for a UK company HMRC will take their cut first. There are no tax implications for moving your own money between countries or converting from one currency to another (unless you start doing it regularly to try and game the exchange rate markets and generate significant income)

Everyone in the US files a tax return - the US tax year runs from Jan-December and you file by the following April. There are tax treaties between UK and US, so you don't get double taxed, but you will have to declare your worldwide income and you will end up paying the highest rate of each country.

Theoretical situation:
UK income taxed at 40% and paid to HMRC
Equivalent rate for your income band in US = 33% - no further tax due in US

UK ISA interest - taxed at 0% due to UK tax-free allowance
US has no equivalent tax-free allowance, so interest income will be taxed at US rates.

Note, this is just for Federal tax, the State tax situation will depend on which state you live in.

The complications arise due to the tax years in UK and US running at different times, and years where you are partially in one country and partially in another. I am no way an expert, others here have much more experience but in general you will want to consult a professional who is dual qualified. I was lucky in that my employer paid for tax returns and had a contract with one of the Big Finance firms to do it for their international staff.

mrken30

I was once told by the IRS that it is possible to move your tax filing year. For most people this is not convenient due to most tax documentation is based on Jan-Dec. If you are going to remain an employee , it is probably easier to keep it that way. If you are incorporating, then it's your choice.

hh619

Hi Yellowroom. Excellent advice and just what i needed to point me in the right direction.

Fortunately, i have no ISA to worry about! In terms of taxation it isn't too bad at all. I assume that once i have a US bank account that my income will be transferred into it in the same way it does here in the UK. Obviously the amount will fluctuate in line with current Exchange rates.

I better start researching tax returns in the US.

Thanks again

mrken30

you can look at taxact and turbotax for free. You may want to download tax act and just look around.

Cook_County

What visa do you have? Why are your employers exposing themselves to substantial US Federal & State penalties for failure to withhold (plus fairly soon UK criminal penalties for failing to prevent the facilitation of tax evasion)?

hh619

Hi Cook. I'm slightly confused about your reply. This is all theoretical… i posted earlier in immigration but this got moved here so its a little out of context. http://britishexpats.com/forum/us-im...rk-l1a-899499/

I'm looking to ask my employer to petition for a L1A visa. This hasn't happened yet, it may never happen. I'm just asking for advice if i were to try and go that route.

From other members posts, this is a legit way to move over. I have no intention to break any laws. I am just doing my due diligence.

Cook_County

If you are in the States on an L-1 visa your employer will withhold US Federal & State tax. I can't think of a sensible corporate reason why they would not.

yellowroom

where the confusion arises is your statement about getting paid in the U.K. If you are working in the US, your salary needs to have all the normal US deductions (equivalent to tax and NI), and most UK payroll is not set up to do that! Where people move to an existing office in the US on an L-1, they usually then move to a local (or international) contract and get paid through the local payroll. If you move to the US to open a US branch of the business, but remain on the UK payroll, this complicates things enormously.

How to pay you is something for your employer to consider - there are payroll contract companies who could manage this on your employers behalf. But as a bigger picture, they may also wish to engage an HR consultant to advise them of their employer responsibilities under US and state law if they do not have that knowledge in house.

hh619

Thanks for the clarifcation. That would be fine, my original question was that i wanted to know whether i'd get taxed twice.

For example: If i start working from a newly created US office, that office would be a subsidiary to the main business in the UK. Therefore, it would be the UK business that receives all of the proceeds for all transactions with customers.

My concern was that it would go through the UK payroll and then US payroll, but from what i can ascertain, that wouldn't happen. Is that correct? When working in the US my salary bypasses UK tax and gets taxed in the US?

Thanks.

MidAtlantic

Not sure what you mean by this. When you are living and working in the US you should be paid on a US payroll and your employer is responsible for ensuring that all the appropriate US deductions are made (Social Security etc.). It would have nothing to do with a UK payroll.

From your perspective it would be US income, taxed in the US and, no, there would not be a UK tax liability.

The US tax deductions are made on the basis of information you supply to your employer concerning federal and state taxes, if applicable (not all states have income tax). It does not work automatically, like PAYE in the UK.

nun

If you are a US tax resident then you must pay US tax on your worldwide income. It does not matter if you are working for a UK or US company, the IRS will require you to pay US payroll and income taxes. If you are not a UK tax resident then there should be no UK income or payroll taxes and if these are withheld they need to be claimed back.

hh619

Thanks mid Atlantic & Nun very informative replies and exactly what i needed. I think i just over complicated the whole thing in my head. It's quite simple really.

Have a nice weekend

durham_lad

To answer another of your questions, the IRS publishes an official exchange rate each year to use when converting £s to $s for income that you receive from the UK.

If your UK income is significant then estimated tax payments should be made to avoid any penalties for underpayment of taxes when you file.

Cook_County

You might still need a shadow payroll to cover UK NIC contributions & pension contributions...your company's existing accountants might need a specialist adviser to assist them with that aspect.