# US citizen, temporary UK resident, being paid in the US...do I owe UK taxes?



## Oleander77 (May 2, 2012)

Hi all, 

I'm trying to figure out whether I should be paying UK taxes or filing UK taxes not...

A bit of background: I'm US citizen. I've living been in the United Kingdom since Autumn 2011 although arrived as a visitor and did not become an official resident until Spring 2012 after my then boyfriend and I got married. I came here on an EEA family permit in Summer 2012. ****We are moving back to the US in Autumn 2013. ****

I've paid my US taxes for 2012 and was planning to pay them for 2013 but am not sure if this is correct. (I realize, of course, that any US citizen needs to file taxes regardless of where they are in the world. But I also realize that the US and UK have a Dual Tax treaty, so it is more a matter of WHO I owe taxes to...)

Based on my research it seems as though I may be consider a UK resident not ordinarily domiciled for the UK tax year April 2012 - April 2013. Not sure what I'd be considered for the tax year April 2013 - April 2014 however (I'll have spent just under half that UK tax year in the UK) 

More detailed information:

I'm self employed and up until June 2013 I made all of my income working for US companies and the money was deposited into a US bank account. I was also paid a very small amount by a UK company directly into a UK bank account in Summer 2012 (approx 200 GBP). In June 2013 I was hired for a freelance job for which I have been (and will continue to be) paid by a UK directly into a US bank account. I have been working for them as an independent contractor and will continue doing so when I'm back living in the US, so paying directly into my US account seemed easiest. 

I do not have a UK national insurance number nor have I received any official UK paperwork. 

So, my question is: do I owe UK taxes and should I be filing a UK tax return? Or should I just continue filing my regular US taxes?

Also worth mentioning: if I DID end up having to pay UK taxes, I would qualify for the Earned Foreign Income Credit on my UK taxes (because I earned less than the maximum allowed amount) 

I do not intend to live in the UK again, although I am sure I would like to come back and visit some day. I'm not trying to avoid/evade paying taxes (like I said, I've already paid my US ones) but am trying to avoid having to hire a UK accountant since based on my research it is going to cost a lot. And I fear if the answer to this question is YES then I will have no choice but to do so. 

To further complicate matters: my US literary agent has recently sold a book I wrote to a publisher in the UK and as such I've been asked to fill out various forms to ensure I will NOT pay UK taxes on the UK book advance (forms stating that I'm a US resident etc) but am now wondering if that is incorrect and I in fact should be paying UK taxes and deducting that from my US taxes??

Sorry for the long confusing post. Any help on this would be VERY appreciated. I've gotten in touch with an accountant who specializes in these matters and was informed it would cost almost 700 USD simply to help me figure out what I should be doing...so thought I would try my luck on here first. 

Thanks very much.


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## Bevdeforges (Nov 16, 2007)

Under normal circumstances, your "primary" tax obligation is to the country in which you are resident. You're considered to be working in the country where you are physically located while doing the work. Where you are paid or in what currency has no bearing on the situation.

Unless there are some exceptional circumstances you haven't mentioned, you would normally pay your income taxes to the UK and take the FEIE (foreign earned income exclusion) on your US taxes once you meet the bona fide resident or physical presence requirements.

If you were physically present in the UK while you wrote the book, then you probably should be paying UK taxes (and will be eligible to use the FEIE against any advance you receive).

Publication 54 should explain the US side of these things. I'll let the UK members of the forum clarify the UK tax side of things for you.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

....But run the U.S. tax calculation twice -- with the FEIE and with only the Foreign Tax Credit -- to see which choice works better for you. The FTC (only) has some advantages in many cases, like making it much easier to contribute to IRAs, preserving certain tax credits (particularly the refundable ones), and allowing carry forward of any higher-than-U.S. U.K. taxes to help offset future U.S. taxes.

Another interesting decision is whether to choose Married Filing Jointly or Married Filing Separately. Assuming your spouse is coming along with you to the U.S., this is one of those interesting cases when MFJ is probably attractive since you spouse will have to file anyway, and you might as well enjoy what is typically the more favorable tax filing status. But "it depends."


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## Bevdeforges (Nov 16, 2007)

One thing to consider with relying on the foreign tax credit - US taxes are cash basis, which means that you can't claim the tax credit against your US taxes until the year in which you PAID the UK taxes. 

If UK taxes are withheld at the source, then it should be ok, though you probably will have to accumulate the withholdings yourself (due to the difference in the tax years) - and you're supposed to declare any refunds as income in the year those are received. If you pay your UK taxes at the end of the tax year, that would mean that your first year filing from abroad you may not have any UK taxes to offset the US taxes due.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Yes, good point Bev. The cash flow considerations are part of the calculus as well.

Note that if you make your own tax payments -- payments to the U.K. much like the IRS Form 1040-ES quarterly payments, for example -- then those will count as taxes paid in the calendar year when they are paid. In other words, taxes might be withheld, but they might also be estimated tax payments you are making as you are receiving the income. Both count.


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## Oleander77 (May 2, 2012)

BBC & Bev, thanks very much for the info so far!!

More info worth mentioning (have done some more research so realize there is more info which may be relevant):

In the UK tax year April 2012 - April 2013 I didn't earn much money and all the payments I received were actually for work I did before I came to the UK. Also, from what I've read, it seems that those who were resident but not ordinarily domiciled in the UK could opt to be taxed on a remittance basis up until April 6, 2013. Hence, and please correct me if I'm wrong, wouldn't I only be taxed on money I brought into the UK? And since I did not bring money into the UK (I used my US debit/credit card for small purchases, but my husband paid for most everything that year), wouldn't that mean I would not owe any taxes in the UK then?

Also, I have done some more research and it is questionable whether I should be considered a UK resident for the tax year April 2013 - April 2014. I will have spent less than 183 days in the UK for this tax year. My "domicile" is definitely in the US. Overall I will have spent less than 2 years in the UK. 

The book that was sold was sold off of a proposal, so the majority of the work will be done in the US, not in the UK. 

Was I wrong to have paid US taxes for US tax year 2012? (I mean, I know I would have to file anyway, but ...) I assumed I owed money to the US because I wasn't outside the US for more than 330 days....My husband (who is coming with me to the US) and I filed jointly for US tax year 2012. We took the FEIE for him and he was treated, for tax purposes, as a non-resident alien. 

Also: no taxes have been withheld for any of the payments I've received since I work entirely as an independent contractor. 

The fact that US and UK have different tax years makes this extra confusing!!!


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## Oleander77 (May 2, 2012)

Oops, realized I mis-typed something in my last message:

"My husband (who is coming with me to the US) and I filed jointly for US tax year 2012. We took the FEIE for him and he was treated, for tax purposes, as a non-resident alien. " 

I meant that he chose to be treated as a RESIDENT as per: http://www.irs.gov/Individuals/Inte...dent-Aliens-Abroad---Nonresident-Alien-Spouse


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## Bevdeforges (Nov 16, 2007)

I can't really help you much with the UK side of your tax situation. But you are correct in that you would have had to meet either the bona fide resident test or the physical presence test in order to take the FEIE for your income in 2012. However, the physical presence test only requires that you are outside the US for 330 days in a period of any twelve consecutive months. (Yeah, it gets tricky when your 330 days overlaps two calendar years.)

But basically, it's never "wrong" to pay your taxes to the US. (They certainly can use the money!) The question is just, under what circumstances are you subject to UK tax on income earned while you were living in the UK? (IIRC, the UK does not require declaration of worldwide income like the US does. Another point of potential complication.)
Cheers,
Bev


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