Contractors' Questions: Will a month's extension for the US be taxing?

Contractor’s Question: I contract via my own limited company near London for a UK based company, but it now wants to extend my contract for one month and send me to their US site to do the American version of my project. I presume I’d be doing the same work and be paid by the same UK company. Although I know a visa is going to be sorted out for me, I don’t know what the tax implications are of me working ‘across the pond’ in this way; if any?  

Expert’s Answer: Based on the information you have provided, it appears that you may be covered by the United States Substantial Presence Test.

Under this test, a foreign national is deemed to be a US resident for tax purposes if he or she fulfills both of the following conditions:

  1. The individual is present in the USA for at least 31 days during the current year
  2. The individual is considered to have been present for at least 183 days during a consecutive 3-year test period which includes the current year.

However, you will have to abide by the Inland Revenue Service (IRS) regulations which require you to file statements with the IRS setting out the facts which prove their claim for exemption. You would then be able to declare your one month income (ensuring it is less than 31 days) in the UK. 

To mitigate the risk by the US authorities of ‘permanent establishment’ for your UK limited company, you may wish to operate the 4-week assignment on a self-employment contract and declare that income on a UK self-assessment return.  

A similar rule applies in the UK where foreigners coming to work in the UK for less than 46 days in a UK tax year are not deemed UK resident for tax purposes, but can declare their UK income in the country where they are currently tax residents.

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

Editor’s Note: Related Reading –

Contractors’ Questions: How to be tax-efficient when IT contracting in the US?

Contractors’ Questions: Can I get my fee from a US client in pounds?

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

Tuesday 14th April 2015