# Confused about Self-employment US taxes on US income while living in UK



## Bangle (Apr 8, 2011)

Hey all =)

This is my first thread here but I've been reading the forum for a while (it's been SO helpful these past few months during my whole visa application/approval process -- so thankful this place exists!), and I've finally gotten up the courage to post a question, since this has seriously been taxing (ha ha) on my stress levels...

My spousal visa was approved at the end of March, and I'm flying to England to join the hubby in, oh, 16 days! (eek!) The whole thing has been a whirlwind of activity, but long story short (or is it too late for that?), I'm tying up loose ends as quickly as I can before the big day. Having just done my US taxes, my future taxes are top of mind. Here are the deets:

-I am a US citizen married to a UK citizen
-I will be doing freelance work for my current employer (moving from full-time to contractor status, and thus will receive a 1099 for work going forward) while living in the UK. 
-I am maintaining some of my US bank accounts, credit cards, etc. (i have family in the states, and thus a family address that I use for those accounts)
-I will be paid via direct deposit to my US accounts with US money and then wiring myself the money via HSBC premiere account -- don't have the obscene 10k minimum they require, so will pay the monthly fee of 50$ instead -- from the US account to the UK account they're setting up for me.

Now here's where I start to get confused (and extremely worried)!

I know that being a US citizen, I will be required to file taxes as normal on any worldwide income, and being self-employed, quarterly estimated tax payments are probably advisable. Residing in the UK, I will also need to register as self-employed and file and pay taxes on any worldwide income I receive, correct? 

I've read there is a tax exemption that can be filed with US taxes for foreign earned income under ~80k or so. Since I am getting paid in US dollars to US accounts, though, I assume then that this is not considered foreign income? Please tell me this is not the case because if I'm to be paying double taxes, it suddenly makes the work situation I lined up for my move completely unfeasible as I'd be paying something like a little over 50% of my wages to taxes! Also, there was something I read that said I'd have had to have resided outside the US for 330 days in the calendar year for it to apply? Does that mean that everyone who moves mid-year gets screwed? Confusing and frustrating!

I plan to seek financial advisement but I don't know how quickly I can locate and set up an appointment for a consultation with someone with this specific set of expertise...and I have my freelance contract ready for signing in front of me (which my boss is asking me for), so I wanted to see if maybe someone on here had some experience with this or had some info to point me in the right direction. My google-fu wasn't yielding particularly helpful results....


Any insight into this situation would be extremely helpful and thank you in advance (and retrospectively!) for this wonderful resource


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## Bevdeforges (Nov 16, 2007)

First of all, welcome to the forum. And congrats on the spousal visa.

Now, let me say that you need to seriously re-think your employment situation. As a contractor, you are in business for yourself. You need first of all to establish your UK business entity so you can bill your US customer (no longer your "employer") for the work you will be doing for them. (It may still be a matter of "self-employment" but under the UK rules - not the US ones.)

The fact of your customer being in the US and paying into your US account does NOT make your income US sourced. Your being physically located in the UK while performing the work makes it a UK job, subject to UK work and commerce rules. You should expect to pay UK taxes and social insurances on all earnings from your business. And as such, you should be receiving somewhat more in contract fees than you were getting as an employee, because you will be bearing the costs of taxes, social insurance and your own office expenses (paper, computer services, etc.) that otherwise your employer would have borne. It used to be a rule of thumb that your hourly rate as a contractor should be twice what you were getting as an employee, but times are tough and perhaps that has changed. But in any event, you should not settle for the same hourly rate as when you were an employee.

As far as US taxes are concerned, you should take a look at IRS publication 54 which explains the overseas earned income exclusion. In essence you will be considered an employee of your own business in the UK, no matter how or where you are paid by the US customer. The 1099 will only serve to inform the IRS of how much you should be reporting on your US return.

Pub 54 also explains how you handle the mid-year move. Basically, next year you will file for an extension on your 2011 filing until you have reached your one-year anniversary in the UK and thus have qualified for the overseas earned income exclusion (form 2555). As an overseas resident, you have an automatic extension to June 15th for filing, so it may or may not be necessary to formally request the extension.
Cheers,
Bev


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## Bangle (Apr 8, 2011)

Thank you so much Bev!!! This is so very helpful  I will definitely check out Pub 54.

Is there anything special I'm supposed to do in order to set myself up as self-employed in England other than registering as such (after receiving my NI number) with a job centre? I wasn't planning on opening a limited business in order to pay myself but is that something that's required or am I getting confused by what you mean when you say I need to set one up? I thought I would be able to bill them as an individual. 

Also, i hope I'm not missing a step here --do I need to notify the US government somehow that I intend to live and work abroad for a number of years?


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## Bevdeforges (Nov 16, 2007)

I'm hoping someone else will pop in here to explain what's needed to set up your business in the UK. I'm across the Channel and it has taken me long enough to sort out what's what and how things work here in France.

For a US citizen leaving the US, there's nothing really much to do other than to file a change of address form with the IRS (if they still really even care these days). Details should be in Pub. 54.

If you plan on changing your name with social security, you should plan on doing so well before you get to the point of filing your first tax return with your new name. I have been told that the IRS refuses any return where the name on the return doesn't match the name social security has on file for that number. However, I filed for 18 years without changing my name on my social security record to match that on my tax returns and never had a problem. Still not sure if I just lucked out and changed my SS record in the nick of time or if what I was told was a bunch of hooey. 
Cheers,
Bev


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## Joppa (Sep 7, 2009)

Bangle said:


> Is there anything special I'm supposed to do in order to set myself up as self-employed in England other than registering as such (after receiving my NI number) with a job centre? I wasn't planning on opening a limited business in order to pay myself but is that something that's required or am I getting confused by what you mean when you say I need to set one up? I thought I would be able to bill them as an individual.
> ?


You need to register as self-employed with HMRC that deal with your taxation and national insurance contributions.
See HM Revenue & Customs: First steps to register as self-employed
There may also be registration required with a professional body for certain activities, but I don't think it will apply to what you are proposing to do.
If you are going to work from home, you should let your household insurers know, but usually for on-line work, you are automatically covered, provided no clients visit your home.
As you will be ordinarily resident in UK for tax purposes, your income will be subject to UK tax, but there is a double taxation agreement between the two countries so you won't be taxed twice.


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## Bangle (Apr 8, 2011)

OK--so, it sounds like I don't necessarily have to start my own company in order to avoid double taxation, is that right? I'd only have to register as self-employed in the UK? I'll be working from home but yeah, no clients will be visiting me at my house  just online work.

This has all been extremely helpful


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## ExpatPumpkin (May 30, 2010)

Far be it from me to want to save on taxes, BUT:

- If you're working for a US company, and
- You're being paid in USD
- Into a US-based account, and
- You're telecommuting
- Seeing no clients, and
- Working from home
- Paying income taxes in the States, and
- Performing services that have 0 effect on the UK economy, and
- You are a dependent of your husband in the UK...

Then why would you be considered self-employed in the UK? I fail to see the reason to register as a UK business... 

If asked at immigration whether you work, I'd say "I work in the States, and I reside in the UK with my husband who is a British citizen" and be done with it.

Do you really think the UK tax people are going to enter your home and "find" you working on your computer?


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## Joppa (Sep 7, 2009)

ExpatPumpkin said:


> Do you really think the UK tax people are going to enter your home and "find" you working on your computer?


There are ways for them to find out whom they suspect are dodging UK taxes - they have extensive contacts with foreign tax authorities including US and wide-ranging powers to compel disclosure of information from banks, employers etc. They even have special teams just looking at tax affairs of foreign residents and international workers, and they just have had their funding increased to compel even greater compliance.
I suggest the OP get proper professional advice, and not rely on comments on expat sites. The best people to contact are UK-based accountancy firms with expertise in the field. Most top firms have private client division who will advise.


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## Bevdeforges (Nov 16, 2007)

ExpatPumpkin said:


> Far be it from me to want to save on taxes, BUT:
> 
> - If you're working for a US company, and
> - You're being paid in USD
> ...


That's not called "saving on taxes" - it falls under the heading of evading taxes and the authorities frown on it. You fall under the jurisdiction of the country in which you are RESIDENT. That's kind of how international tax treaties work.

Those of us who have US citizenship have the additional burden of having to file tax returns for the US no matter where in the world we live - but there is the ability to exclude up to about $90K of earned income using form 2555. 

You pay taxes in the UK as a resident because you are eligible for UK social services, including health care and retirement, for which you are expected to pay through your employment.
Cheers,
Bev


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## ExpatPumpkin (May 30, 2010)

Bevdeforges said:


> You pay taxes in the UK as a resident because you are eligible for UK social services, including health care and retirement, for which you are expected to pay through your employment.
> Cheers,
> Bev


This is a good point that I wasn't considering...


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