Contractors' Questions: Which form to fill in so a US client can pay me?

Contractor’s Question: I'm a UK contractor with his own England-registered limited company and I’ve provided a freelance service including some licences to a company located in the USA.

I've been asked by this US-only client to fill in and return Form i-9, but I believe this form is not relevant to me. What form should a limited company (operating under my trading name) fill in when contracting for a firm exclusively located in America? Meanwhile, I’ve read that tax will be levied at a whopping 30%; surely this isn’t the case?

Expert’s Answer: From the information provided, it seems that a US-based client issued a contract to your UK personal service company for a ‘freelance service’ which has been carried out. It seems that your company now needs to receive payment.

You should therefore complete Form W-8BEN-E before that payment can be made to your UK limited company; but you do not send it to the IRS (US Internal Revenue Service).

Instead, you must present the Form to the ‘tax withholding agent’ (i.e. your US-based client). This is because a ‘foreign entity’ (i.e. your UK personal service company) is receiving a payment which is subject to US withholding tax.

The Form is submitted by the client to the IRS. The client should then check with the IRS whether the maximum 30% has to be withheld or whether applicable tax treaties (between the US and UK) and any special circumstances affecting the work assignment can effect a lower percentage.

You may then be able to offset the US withholding tax against your UK corporate tax liability on your personal service company’s next corporate tax return. Good luck!

The expert was Mike Phillips of its international, specialist consultants in tax and finance.

Thursday 25th June 2015