New Contractor working for US company from UK - Advice Needed!

[buddy99]

HI,

So to cut a long story short, I have been offered a perm job with a US company but the visa process takes some time and I may not be able to move to US and work for them until October this year (there are various complications relating to the visa process that I will not bore you guys with).

The company is eager for me to start ASAP and we have agreed for me to work for them as a contractor from the UK until I get visa and can move to the US. I have set up a Ltd. company in the UK and will subcontract for the US company through an intermediate (US based) agency. There is a form I need to fill out for the US tax authorities so that I am not liable for US income tax so this is not an issue I don't think.

I am completely new to contracting so forgive the newbie questions:

1) I am unsure if I will be liable for IR35. However given that I will be contracting in UK for no more than 6 months and will then be permanently living in the US, is it likely IR35 is not something I need to worry about?

2) Am I correct in my understanding that I would file my first taxes 12-21 months after I set up my company? I will be in the US by then. Do I just need to file taxes in ~April 2016 (from the US) for the 6 months of work I did in the UK and pay the ~20% corp tax before shutting down my company?

3) Are there any other pitfalls I need to be aware of? Will I need to file any other paperwork in the first 12 months? My understanding is that VAT is not an issue for a B2B relationship outside the UK/EU.

Any advice appreciated!

[jamesbrown]

The short answer is that you'd be best working through a UK umbrella company for such a short period, unless the US client has a UK payroll (I assume it doesn't, and you mention an agency). It really isn't worth opening a UK company for such a short period, especially given the circumstances you describe (yes, IR35 would need to be assessed, and you describe a relationship that is intended to be one of employer-employee, so the contract would likely be caught). By the way, you're confusing the tax years for a company and you personally, which are two different things.

[redgiant]

I agree with James.

I am in a similar situation to you but have already a UK LTD which I have been using for several years for contracting in the UK. For the timescales you mentioned an umbrella would be the most cost effective way and also as you are taxed PAYE by the umbrella it is much easier to report your income to the IRS than having a UK LTD which would need to be closed when you move to the US and could be subject to US tax on the UK LTD assets when you close it depending on when you close it. I would get advice from your accountant as well if you haven't already.

[Jack Kada]

HI,

So to cut a long story short, I have been offered a perm job with a US company but the visa process takes some time and I may not be able to move to US and work for them until October this year (there are various complications relating to the visa process that I will not bore you guys with).

The company is eager for me to start ASAP and we have agreed for me to work for them as a contractor from the UK until I get visa and can move to the US. I have set up a Ltd. company in the UK and will subcontract for the US company through an intermediate (US based) agency. There is a form I need to fill out for the US tax authorities so that I am not liable for US income tax so this is not an issue I don't think.

I am completely new to contracting so forgive the newbie questions:

1) I am unsure if I will be liable for IR35. However given that I will be contracting in UK for no more than 6 months and will then be permanently living in the US, is it likely IR35 is not something I need to worry about?

2) Am I correct in my understanding that I would file my first taxes 12-21 months after I set up my company? I will be in the US by then. Do I just need to file taxes in ~April 2016 (from the US) for the 6 months of work I did in the UK and pay the ~20% corp tax before shutting down my company?

3) Are there any other pitfalls I need to be aware of? Will I need to file any other paperwork in the first 12 months? My understanding is that VAT is not an issue for a B2B relationship outside the UK/EU.

Any advice appreciated!

Working for a US company brings with it all sorts of problems - Are you sure you know what those are and what will be required when you move?

At the very least you need to be aware that worldwide income, irrespective of where it has been earnt will be liable to US tax and that there is no double tax treaty.

Be extremely careful about this. The americans are also extremely punitive in any tax avoidance / mitigation strategies. When I looked at the working in the US I found out that quite apart from the visa issue, the worldwide tax issue, that medical insurance was expensive and that the Americans have their own unique and rather complicated work life culture meant it was not worth it.

Add to that the extreme cold and humid heat and I thought London was heaps better

[redgiant]

Working for a US company brings with it all sorts of problems - Are you sure you know what those are and what will be required when you move?

At the very least you need to be aware that worldwide income, irrespective of where it has been earnt will be liable to US tax and that there is no double tax treaty.

Be extremely careful about this. The americans are also extremely punitive in any tax avoidance / mitigation strategies. When I looked at the working in the US I found out that quite apart from the visa issue, the worldwide tax issue, that medical insurance was expensive and that the Americans have their own unique and rather complicated work life culture meant it was not worth it.

Add to that the extreme cold and humid heat and I thought London was heaps better

There is a tax treaty between the US and UK (which also covers double taxation) -
http://www.treasury.gov/resource-cen...s/uktreaty.pdf. This doesn't mean it's straight forward so I have used the advice of a UK/US tax expert to cover the details of my specific case.

As for the other points you mentioned this has been covered in other previous posts. In summary the US is a big place with differing lifestyles varying from state to state and although expensive medical insurance is offered as part of most employment packages.

[Jack Kada]

There is a tax treaty between the US and UK (which also covers double taxation) -
http://www.treasury.gov/resource-cen...s/uktreaty.pdf. This doesn't mean it's straight forward so I have used the advice of a UK/US tax expert to cover the details of my specific case.

As for the other points you mentioned this has been covered in other previous posts. In summary the US is a big place with differing lifestyles varying from state to state and although expensive medical insurance is offered as part of most employment packages.

Thanks - That is interesting to know that there is a double taxation treaty.

[buddy99]

I agree with James.

I am in a similar situation to you but have already a UK LTD which I have been using for several years for contracting in the UK. For the timescales you mentioned an umbrella would be the most cost effective way and also as you are taxed PAYE by the umbrella it is much easier to report your income to the IRS than having a UK LTD which would need to be closed when you move to the US and could be subject to US tax on the UK LTD assets when you close it depending on when you close it. I would get advice from your accountant as well if you haven't already.

I spoke to my employer about an umbrella company and they were unfamiliar with it(I dont think they are used extensively in the US) and expressed a preference for me to use my own company. They are concerned about the amount of insurance I need to have.

With regards to the IRS, I have spoken to someone who has done exactly what I have done before and he told me there is a form he submitted to the IRS which absolved himself of all US tax liabilities while working from the UK as an LTD company.

Following on from your points - given the 6 month timeframe, could I just pay 100% of profit in to my LTD company as salary and calculate PAYE myself? This would actually save me money on such a short timeframe as I would benefit from the tax free allowance. I realise an umbrella company would be a much simpler way of doing exactly this but as I say my employer is keen for me to operate as a Limited company. Would doing PAYE myself through my own LTD be a massive headache?

[ASB]

Paye is pretty simple.you could do that. May not be particulatly efficent depending on your circumstances.

You could also simply be a uk based employee ( temporarily) of us co.

yes you should then operate direct collection, but declare it on you next tax return with a note. Claim dta relief and the bill should only be the difference between what was deducted by us co (federal taxes only?) and uk paye rates on that bit.

dont forget to check out the split year provisions for departure/arrival years.

I strongly suspect that a lot of people (me included) given the short terms nature of it would simply give a comprehensive description of it in the other info section ensuring disclosure obligations were met and await an enquiry within 12 months, furnish any additional info and pay up.

[jamesbrown]

I spoke to my employer about an umbrella company and they were unfamiliar with it(I dont think they are used extensively in the US) and expressed a preference for me to use my own company. They are concerned about the amount of insurance I need to have.

With regards to the IRS, I have spoken to someone who has done exactly what I have done before and he told me there is a form he submitted to the IRS which absolved himself of all US tax liabilities while working from the UK as an LTD company.

Following on from your points - given the 6 month timeframe, could I just pay 100% of profit in to my LTD company as salary and calculate PAYE myself? This would actually save me money on such a short timeframe as I would benefit from the tax free allowance. I realise an umbrella company would be a much simpler way of doing exactly this but as I say my employer is keen for me to operate as a Limited company. Would doing PAYE myself through my own LTD going be a massive headache?

Yes, you can certainly operate PAYE, or simply operate IR35 appropriately (95% through PAYE and 5% expenses). It wouldn't be a "massive headache" because you'd have a UK accountant to do it (). I'd still consider the umbrella route, though, providing the umbrella can provide the necessary PI insurance - certainly it would be more complicated if the contract between the US agency and the UK umbrella demanded US governing law and jurisdiction, but that would be a contractual issue, and you'd need to speak to an umbrella. An umbrella company is just a UK company, so it should make absolutely no difference to the client (or indeed the US agency) providing the contractual terms can be agreed. On personal taxation, I expect you could apply a split-year treatment in the UK and a dual status return in the US (basically the same thing), but you'd have to check the details with a professional (eligibility for personal allowance etc.).