# US Remote Payroll with Residence in UK



## marcy10 (Jan 12, 2020)

Hello,

I am hoping someone can assist me. My husband and I (US citizens) recently relocated to the UK for a 1 year work assignment for his job. He was assigned a Tier 2 Visa of which I am a dependent. I remained working remotely for my US company part-time and still get paid into my US bank account (I do not have a UK bank account). My US company does not claim that I work in the UK, and they do not have any business dealings in the UK. What are my tax implications in the UK?

Any information/suggestions are appreciated!


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## Crawford (Jan 23, 2011)

Your tax implications are that you should be paying tax in the UK - where you are resident.

How you do this without your company having a presence in the UK I don't know; only that you should be paying taxes in the UK.


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## Nononymous (Jul 12, 2011)

What you've described is a very common "trailing spouse" scenario with corporate work assignments and academic exchanges.

First the bad news: technically, as a dependant you probably are not allowed to work at all, even if it's remote work from another country; if you are working, on some level you would be obliged to pay UK tax on that income.

Now the good news: the law has not caught up with the reality of remote work; as long as you are not working in the local economy, no-one need be any the wiser. 

Since you will only be living the expat life for one year, keep doing what you're doing. You're happy - you're making money. Your company is happy - it's kept an employee and has no extra paperwork to deal with. Local merchants are happy that you are spending your earnings in their shops, and even the UK government is happy to collect VAT on those sales. So everybody wins - don't feel guilty. If you followed the rules and didn't work, less money would go into the UK economy. This happy situation is fine for a year or two, but probably not five or ten, by that point you might be taking risks.

Attempting to make this right by seeking a visa change or filing UK tax would likely result in confusion and/or disaster, I expect. I don't know how your husband is taxed while working in the UK but his ability to claim you as a dependent might change if your income had to be accounted for. 

Also, I assume you just told your US company to continue as before, keeping you on payroll, using your US address and bank account. That's all fine, but you should not be paying for any health insurance you're not using while away, and look into using the FEIE to basically pay no tax on the money you're earning while living outside the US, even if it is US-source income. That can be done.


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## Crawford (Jan 23, 2011)

She is a Tier 2 dependent. ..... she is allowed to work.


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## Nononymous (Jul 12, 2011)

Crawford said:


> She is a Tier 2 dependent. ..... she is allowed to work.


Ah, thanks for clarifying.

In this case, two options really.

Option 1: Figure out how to pay UK tax on that money, and then use tax credits or the FEIE to not pay US tax. Simplest way to do this is probably to resign the salaried position and work for the US employer as a contractor, having set up as a freelancer in the UK. Possible additional complications with Social Security and its UK equivalent.

Option 2: Maintain the status quo. US employers pays into US bank account, no UK tax paid.

For one or two years, stick with option 2. For a longer stay, option 1.


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## Crawford (Jan 23, 2011)

Option 2.... somewhat unethical suggestion. The OP is living in the UK, no doubt benefiting from services which are provided in part by other tax payers, and yet he/she, although earning, pays nothing into the system.

Sounds like both OP and his/her company are 'up' with this scam.


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## Moulard (Feb 3, 2017)

Nononymous said:


> In this case, two options really.
> 
> Option 1: Figure out how to pay UK tax on that money, and then use tax credits or the FEIE to not pay US tax. Simplest way to do this is probably to resign the salaried position and work for the US employer as a contractor, having set up as a freelancer in the UK. Possible additional complications with Social Security and its UK equivalent.
> 
> Option 2: Maintain the status quo. US employers pays into US bank account, no UK tax paid.


Actually there is a third option which avoids the ethical and moral dilemma that involves not paying via taxes for the services the OP uses in the UK.

Option 3. File Form 673 with your US employer so that they stop US tax withholding. Declare US income as part of return the HRMC. Pay tax in the UK on that income and not the US...

https://www.irs.gov/pub/irs-pdf/f673.pdf

The kicker (and there is always a kicker) is that I believe the totalisation agreement between the UK and the US has expired. So the OP might end up having to pay into both schemes - I simply don't know if it covers just income tax or, FICA and income tax withholding.


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## Moulard (Feb 3, 2017)

Found the answer after the timer expired for editing my post

Confirmed my expectations... not exempt from Social Security and Medicare (including Additional Medicare Tax when wages are paid in excess of $200,000)



> *Foreign service by U.S. citizens For foreign affiliates of American employers and other private employers*
> Exempt * unless* (1) an American employer by agreement covers U.S. citizens employed by its foreign affiliates, or (2) U.S. citizen works for American employer.


So on the information at hand, the OP is not exempt from Social Security and Medicare taxes...

But would be eligible to avoid income tax withholding so long as eligible for the FEIE.



> Exempt if at time of payment (1) it is reasonable to believe employee is entitled to exclusion from income under section 911, or (2) the employer is required by law of the foreign country to withhold income tax on such payment.


https://www.irs.gov/publications/p15#en_US_2020_publink1000202554


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## Bevdeforges (Nov 16, 2007)

Moulard said:


> The kicker (and there is always a kicker) is that I believe the totalisation agreement between the UK and the US has expired. So the OP might end up having to pay into both schemes - I simply don't know if it covers just income tax or, FICA and income tax withholding.


Not sure that totalization agreements come with expiration dates, but in any event, unless the UK treaties are different, it's normally the case that the "totalization agreement" deals exclusively with "social security" (i.e. government mandated social insurances) while the "tax treaty" deals with income tax issues. There may also be a separate "inheritance tax" treaty to deal with.


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## Nononymous (Jul 12, 2011)

Regarding option 2. Doing this long term is unethical, not to mention illegal and unwise. Doing it for one year as a trailing spouse is just sensible. The bureaucracy involved, especially sorting things out long after having left the country and possibly closing bank accounts, is just not worth the trouble when the risks are so small.


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## Moulard (Feb 3, 2017)

If the OP is only in the UK for a year, they would be frightfully unlucky to have to deal with UK inheritance tax (or estate taxes in the US for that matter), but yes, income tax, social security tax, capital gains and conceptually a whole bunch of other taxes could all come into play if one was unlucky or did not plan well...

But that is neither here nor there... and for that matter I can't see where the reference to inheritance taxes came from in light of the fact that it hasn't been mentioned at all in the thread to date....

The point of my post was that the OP had a third option that they could explore beyond the two proposed by Nononymous. 

If they met the requirements of the FEIE (which they are likely to do if they are in the UK for a year) but were being paid by a US employer, they can request a stop to income tax withholding in the US. Which would ease the burden of paying UK income taxes as they should if they are tax residents of the UK. 

As Crawford also suggests, if they are living in then it seems perfectly reasonable for the OP to contribute via income taxes while they are resident there... what I proposed was a solution that met that moral obligation without the burden of double taxation.

But, as you rightly point out, social security taxes are a different beast, and I highlighted that they would not be able to stop FICA tax withholding absent an agreement between the two countries.

On the totalisation agreement expiry I was wrong, but that does not materially change things too much. 

The US will continue to withhold social security payments and under the not expired social security agreement they would not have to pay into the UK system as a US person employed by a US company working in the UK up to 5 years.


So a revised option 3 is to

- Request the US employer stop US tax withholding via Form 673.
- Pay income tax to the UK
- Continue to pay FICA / social security taxes to the US per the totalisation agreement.


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## Nononymous (Jul 12, 2011)

Again, seems like a lot of paperwork for someone only spending a year in the UK. What to do, however, is ultimately between one and one's conscience.

There would be no double taxation to worry about. For the FEIE route, it's the dates and duration of non-residence that matters, paying UK tax isn't a factor (so one could even avoid paying either if one wanted to be unethical). Going the tax credit route, however, requires first paying UK tax to then take the FTC and not pay US tax.

Can't comment on the social security and totalization agreement thing because I don't pretend to understand it.


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## marcy10 (Jan 12, 2020)

Crawford said:


> Option 2.... somewhat unethical suggestion. The OP is living in the UK, no doubt benefiting from services which are provided in part by other tax payers, and yet he/she, although earning, pays nothing into the system.
> 
> Sounds like both OP and his/her company are 'up' with this scam.


Thank you for your responses, however I am not 'up' with any sort of scam. I am researching and trying to determine the correct and legal way to file my taxes.


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## marcy10 (Jan 12, 2020)

Thank you everyone for your responses.You are correct in that I do not have any sort of inheritance tax to claim and typically could file my US taxes with a simple 1040EZ form on TurboTax.

It is an interesting suggestion to request a US tax withholding, as I have not be recommended that route. 

Can I request the stoppage even though my employer is only a US company with no business dealings in the UK? 

Would that option work out better for me than filing on a remittance basis? I have been researching extensively on this topic and believe I could file on a remittance basis and "be okay" as I would only be filing based on the income I bring into the UK. At this time we are only using my husband's income, which leads me to believe I could file at $0, since my income is not being used in the UK. 

I believe there is a certain timeframe of when you are considered a resident - is it 90 days living in the country? I am trying to understand all my tax implications and if it becomes too difficult, then I will need to return to the US.. although I'd like to experience this opportunity with my husband and stay the full year if possible. 

Thanks again for everyone's responses and assistance, it is appreciated!!


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## Nononymous (Jul 12, 2011)

marcy10 said:


> I believe there is a certain timeframe of when you are considered a resident - is it 90 days living in the country? I am trying to understand all my tax implications and if it becomes too difficult, then I will need to return to the US.. although I'd like to experience this opportunity with my husband and stay the full year if possible.


If you want to enjoy a stress-free year in the UK, just keep doing what you're doing. Stay on the US corporate payroll and Inland Revenue won't be any the wiser. Trying to "do the right thing" will likely be a bureaucratic nightmare that will make your year anything but fun, and is ultimately not necessary. Nor is returning early.


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## Bevdeforges (Nov 16, 2007)

Not trying to nit pick, but just a little clarification.



marcy10 said:


> Thank you everyone for your responses.You are correct in that I do not have any sort of inheritance tax to claim and typically could file my US taxes with a simple 1040EZ form on TurboTax.


There is no more 1040EZ any more. Bummer. <g>



> It is an interesting suggestion to request a US tax withholding, as I have not be recommended that route.
> 
> Can I request the stoppage even though my employer is only a US company with no business dealings in the UK?


There are a couple different ways to do this, but not really worthwhile if you're just going to be there for a single year.



> Would that option work out better for me than filing on a remittance basis? I have been researching extensively on this topic and believe I could file on a remittance basis and "be okay" as I would only be filing based on the income I bring into the UK. At this time we are only using my husband's income, which leads me to believe I could file at $0, since my income is not being used in the UK.


Again, there are ways around this, though they are a whole lot more work than they are worth for a "temporary" stay in the UK.


> I believe there is a certain timeframe of when you are considered a resident - is it 90 days living in the country? I am trying to understand all my tax implications and if it becomes too difficult, then I will need to return to the US.. although I'd like to experience this opportunity with my husband and stay the full year if possible.


For the UK, I believe there is a 183 day rule - but basically, it is a matter of "residence" and the rules in the UK for determining residence fill a couple hundred pages. That's one of the reasons you shouldn't have any problems by just hanging tight and doing things as you're doing them now. Now, if for some reason, you wind up deciding to stay indefinitely, then you may want to look into formalizing your situation with your US employer. (Usually involves setting yourself up as a "contractor" or small business to recognize the income.)


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## Moulard (Feb 3, 2017)

marcy10 said:


> Can I request the stoppage even though my employer is only a US company with no business dealings in the UK?


Definitely. The whole intent of the form is to stop tax withholding on income that is 1) considered foreign sourced 2) would be exclude-able under the FEIE and 3) for which the other country has the primary right of taxation.

Without it, (if you played by the "rules") you would have to use your savings to pay any UK tax bill and then claim a refund of the US tax on the amount withheld. I guess with the differences in tax years, it might be the other way round. 

Now, if you aren't going to be paying tax as a tax resident of the UK, you should not use the form.. that is tax evasion. The FEIE requires you to be a tax resident of a foreign country.



> I believe there is a certain timeframe of when you are considered a resident - is it 90 days living in the country?


Every country has slightly different rules on tax residency. But one common feature is what is known as the 183 (or thereabouts) rule. If you are in a country for more that 183 days in the year they deem you a tax resident. Now there can be other rules too.. for example Australia has four tax residence rules.. 

Personally, I believe if you are actually living in a country, then you have a moral obligation to contribute to the cost of the services you are using in that country. 

I doubt it is going to be some "be a bureaucratic nightmare that will make your year anything but fun". Of all the countries I have lived in, the only one that would come close to that has been the US.


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## Bevdeforges (Nov 16, 2007)

Moulard said:


> The FEIE requires you to be a tax resident of a foreign country.


I admit that this is nitpicking, but not necessarily. Under the physical presence rule, you can simply be outside the US for the requisite time, even in a series of countries (thus never becoming "tax resident" in any of them) and you still get to exclude your earned income. In fact, in the first year overseas, most taxpayers have to invoke the physical presence test (and delay filing until they have met the test) because the bona fide resident test involves spending an entire calendar year outside the US.

But I heartily agree with your assertions about paying your taxes to the place where you are actually living.


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## Nononymous (Jul 12, 2011)

Bevdeforges said:


> I admit that this is nitpicking, but not necessarily. Under the physical presence rule, you can simply be outside the US for the requisite time, even in a series of countries (thus never becoming "tax resident" in any of them) and you still get to exclude your earned income.


This is the quasi-loophole that makes the digital nomad thing so attractive. A US citizen can shift from country to country on 3 and 6 month tourist visas, working remotely, and pay no tax anywhere. Perfectly legal from a US perspective, probably not fully legal from the host country perspective but the point is to behave like tourists, with travel health coverage. Ethically problematic in some senses (driving the AirBnB economy) but still putting money into host countries. Not smart or cool to park somewhere for years and years, however, doing border runs to renew tourist visas, without ever paying local taxes. But of course if countries don't permit you to work, even if it's remote work outside the local economy, then it's not really possible for them to collect tax on that income.

The 183-day rule isn't hard and fast. One could easily argue that a trailing spouse on a one-year work assignment, working part-time remotely for their US employer, is not a UK tax resident. (There are reports of both France and Spain allowing people to stay one or two years on the basis of remote income with no expectation that they enter the tax system, so this isn't just me making something up.)

One factor to consider is that if it really is just a one-year visit, you'll potentially need up to a year after departure to sort out all the tax back-and-forth, which could mean keeping a bank account open and arranging mail forwarding. Factor in two years or more if the country is Germany, according to someone I know who went through this.


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## Moulard (Feb 3, 2017)

Setting aside for a moment that I wrote tax resident when I probably should have said tax home, the IRC and Treasury regulations back my core point. Regardless of bona fide residence or physical presence one must have a tax home outside the US.

A tax home is considered to be located at the individual’s regular or principal place of business.

If an individual does not have a regular or principal place of business, the individual’s tax home is at his or her place of abode in a real and substantial sense.

Unless you have a foreign tax home you cannot take the FEIE. 

An individual is more likely to be deemed to have a U.S. abode if his or her ties to the foreign country are limited or transitory – so when push comes to shove those digital nomads probably not actually meet the tax home test.

Whether or not the OP believes their place of abode in the UK is really for the OP to decide and to act accordingly. 

Really all I was doing is offering a third option to the first two that were offered by Nononymous...


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