Contractors' Questions: How to start contracting in the USA?

Contractor’s Question: I currently work a full-time software job and pay my tax and National Insurance (NI) through my employer but I have been offered a contract role by another, non-competing employer. The freelance role is without an agency; will be facing the US technology sector and will be with an American company. I will receive income from abroad as I will continue to live in the UK because I will work remotely.

Assuming I accept the contract offer, will I need to do anything different in terms of paying tax and declaring income to the UK taxman due to me receiving a new income from abroad? I doubt my affairs will change too much as the sums involved are only small and will be paid weekly or monthly.

Expert’s Answer: There are a number of ways that you can operate as a freelance or contract worker – through an umbrella company, by registering as self-employed or by setting up as a limited company.

And as you will be working in the UK – then tax is payable in the UK, and by using any of the three options above it would mean that you’d still pay the tax in the UK.

Regarding any change to your tax status; if you use an umbrella company then all your tax and NI will be accounted for via PAYE, so you would not have to directly inform HM Revenue & Customs. Should you choose to work via a limited company, then you would normally be issued with a Self Assessment Return as a Director. However if one is not issued then you should request one from HM Revenue & Customs.

At the same time, your American client would need to confirm that they are willing to receive an invoice from a UK company for your services; this would be raised by you and your own company, or through the umbrella company that you operate under.

Given the small amounts of work and income involved, I would recommend the umbrella route. This is probably the most flexible and hassle-free option for you at this time. However you may want to consider setting up your own limited company if you decide to carry out more freelance work and projects with other companies in the UK or overseas.

The expert was John Lyon, managing director of Independent Contractor Services Limited, a tax specialist for contract, self-employed and freelance workers.

Tuesday 12th April 2011