Where to pay tax if I work for an American company from Britain?
Freelancer’s Question: I was (and am) in a similar situation to this fellow FreelanceUK reader of mine!
I have many relatives in England and so a couple of years ago, I decided to move from the US to the UK. Then, like now I work from home, albeit on a different contract but working for the same US company. Due to the fact that the money is earned as if I’m in the United States, I pay taxes in the United States; that’s the correct thing to do isn’t it, in terms of tax treatment? But is there any other lawful way of operating, which is more efficient?
Expert’s Answer: In light of the covid-19 pandemic, remote working has soared and we have seen people cross borders to spend time in another country while completing work for their employer based in the originating country. It is estimated that in the US alone, there are more than 51 million contingent workers and this is expected to grow further in 2022.
The treatment of workers from both a tax and legal perspective can change depending on which country you are working from, along with your visa circumstances.
Where the work is carried out is key
But as a general rule of thumb, tax is applicable depending on where the work is carried out and not where a company is incorporated or registered.
Reviewing the information provided in your question, the answer differs depending on if you are an employee or an independent contractor.
Your obligations as an employee...
If you are an employee of a US company, I would advise that if you live in the UK for most of the year (if not all) then you should be paying tax in the UK. To ensure you pay the correct taxes in the UK if you are operating as a sole trader you will need to register for self-assessment.
If your American employer is withholding US taxes from your salary payment each month, then you will need to complete Form 673 and a W9 form to submit to your employer. If you are not American or a green-card holder, then you would need to submit a completed W8-BEN form to your American employer.
Or if you're freelancing...
If you are an independent contractor of your own US entity, then – again -- the source of income tax depends on the location of where you as the independent contractor performs the work.
If you are set up as an independent contractor in the US, but are completing all of your work in the UK, you will need to register as a freelancer/contractor in the UK by registering with HMRC for self-assessment. There may also be tax nuances around completing work in the UK where you are providing the services to a client located in the US. To get on top of these nuances, you will need to contact the IRS and seek federal advice as to the particulars of your situation and whether or not as an independent contractor, you should be withholding or paying taxes in the US.
Do get tax-efficient -- with tailored advice
Please note, this answer is in a simplistic format, as without a greater understanding of your full situation it is difficult to respond with definitive guidance tailored to you. However, you ask about efficiency and there are indeed various tax breaks you could be benefitting from and other tax requirements that you should be aware of. To ensure you’re not missing out on these, I suggest you seek specialist tax advice from a cross-border accountant who works in both the US and UK, and who understands the treaties and complexities that exist. Good luck!
The expert was Amy Davies, director of strategic operations and growth at UK-US employment advisory PGC Group.
4th March 2022