Andy_M

I'm planning to work as a contractor for a UK company. I have US green card. Can the UK company just pay me in UK? If so, where would I pay the taxes?

AdobePinon

To the US, if that's where you live.

BTW: The US taxes its citizens and residents on worldwide income, not just that sourced from the US.

Michael

Since you are a resident in the US, the US gets first crack at taxes on earned income no matter where you are paid and who you work for. Therefore make sure that the UK doesn't withhold taxes since the foreign tax credits can't be used against US taxes owed. If the UK does withhold taxes, you'll have to fight with the British government to get the taxes back.

Andy_M

Thanks both for the swift and helpful reply.

nun

Where will you be working?

If the work is done in the UK you must pay NIC and UK taxes. You would also have to satisfy US tax laws as a green card holder, but you'd be in danger of loosing the green card in those circumstances.

If the work is being done in the US you have no UK tax liability. You must pay US tax and FICA. The UK company should set that up for you, or you should be a contractor to the company and set that up yourself.

JAJ

If the income is U.K. sourced, then U.K. tax may well be payable unless there is a tax treaty exemption. U.S. tax will always be payable.

I'd have thought a foreign tax credit would be available against U.S. tax however it will normally limit to the U.S. federal rate so may not eliminate all double tax. In addition, most states do not give credit for foreign taxes.

Some planning, with professional assistance, should be done around Social Security tax/National Insurance (normally it would be better to pay Social Security, if future is in the U.S.) and whether incorporation would be a good idea.

Michael

Can you give an example of when that might occur? Throughout the developed world, companies are outsourcing jobs to developing countries and I don't believe that their employees income is taxable in the developed country. In the case of the OP, it would seem to be the same where the company is outsourcing the job to someone that is working in the US.

Steve_

You don't work directly for them, you subcontract, so you send them an invoice and that's it pretty much. There's no VAT either as you have no permanent establishment in the UK and all the work is being done outside the UK.

Obviously you need some sort of business set up in the US in order to pay the taxes on that income in the US, e.g. your own corporation or you are self-employed, i.e. you have to do Schedule C and SE for your 1040 and pay the employer's half of FICA.

Work this out before you quote them a price, payroll taxes in the US are pretty high. 6.2% Social Security + 1.45% Medicare and then multiply by two = 15.3% and that's before any income tax.

This is the big mistake people make with self-employment in the US, they forget how high the payroll taxes are, which is why a lot of employers force them into self-employment in the first place.

Steve_

Not if he's purely providing a service and the work is all done abroad, he just invoices them for it, in essence it is no different to them buying a box of widgets from abroad, he has no establishment in the UK I presume. The more interesting question is what happens if you have to go to the UK for any reason and do some of the work there. Stuff that is de minimus e.g. providing a bit of training or meetings is always exempt but you should really look at the tax treaty if it's anything more than that.

Also you need to make absolutely certain that you have cut all ties to the UK if that's where you're from (e.g. no library card, no NHS prescription card, etc.) and have established ties to the US.

g.g.j

I'm about to move the USA and I'm keeping my UK job and being paid in the UK. Rang tax office a couple of hours ago and they just said file a P85 and I would be given a 0 tax rating for my UK pay as long as I was resident in the USA, was doing all of my work in the USA and have no ties remaining to the UK.

Try: http://www.hmrc.gov.uk/leaflets/c9.htm

I'll have to declare the income in the USA myself.

I've seen some people mention incorporating, taxation agreements but I've found no evidence that it is required. Check the UK tax office website and then call them and ask.

nun

Income tax is just one of your obligations. You will have to pay US income tax and also US employment taxes like FICA and Medicare as well as complying with State tax rules.

Steve_

You don't need to incorporate but you said "being paid in the UK". You can't be paid in the UK. You don't live there, they are paying you as a subcontractor who lives abroad unless they have a US payroll. Even if you use a UK bank account, you should have filed an R105 with the bank and have a US address on that account.

You must do withholding, so that means you have to have a US payroll, so you either become self-employed or set up your own company, hence why many people use corporations (although I agree a lot of people set up corporations who don't really need to, accountants sometimes talk people into it because they make money out of doing the 1120).

Like I said above, be sure to take into account US payroll taxes when you do this.

Another thing that is good to do if you can pull it off is invoice them in US dollars, insulate yourself against exchange rate changes.

g.g.j

I'm well aware, I was answering the question with respects to UK tax, I will be declaring my income as if I was self employed in the USA and paying all relevant taxes.

JAJ

Why can't a U.S. resident be on a U.K. payroll, as long as that person declares federal/State income tax in the U.S.?

It may not be advisable to structure things this way as it will likely mean U.K. income tax and possibly National Insurance, but I see no evidence that this is impossible.

penguinsix

This is a self-employment tax calculator you might want to try. Gives you an estimate of how much more you should charge the employer for your contract so you are 'whole' when it comes to your final paycheck amount.

http://www.bankrate.com/calculators/...alculator.aspx