UK Question for UK accountants

[Drmdcpa]

Have a US client getting paid by UK business. UK business has a wholly owned US subsidiary but for some reason paying US citizen and resident from Ltd not Inc.

International tax treaty does not help.

Does US client have reporting or tax liability in UK for services rendered paying US$70K?

 

[Fidget]

What do you mean by: "for some reason paying US citizen and resident from Ltd not inc"?

 

[Drmdcpa]

What do you mean by: "for some reason paying US citizen and resident from Ltd not inc"?

Ltd is UK company; Inc is US company. They are paying her directly from the Ltd not funnelling it through the Inc. The Ltd has no US presence.

 

[Fidget]

Ah right. So, UK Ltd is paying somebody in the US for whatever services? Unless there's US legislation that doesn't allow individuals to be paid directly from overseas companies, then it's fine.

In terms of UK tax, unless the US based person qualifies as UK resident for tax purposes then they won't be liable for any UK tax. Determining residence status for tax here can be quite involved, but you can have a look at the link below to see if you think anything might apply. Bear in mind that you don't need to be a UK national to qualify as being resident for tax purposes. It's more about time spent here and connections to the UK that somebody has.

RDR3: Statutory Residence Test (SRT) notes

www.gov.uk

There's also this link which deals with domicile:

Guidance note for residence, domicile and the remittance basis: RDR1

www.gov.uk

 

[Drmdcpa]

So many tax treaties allow person providing personal services to not be subject to taxation in the non-resident country if they are only on non-resident soil for a limited number of days. But the US-UK treaty says such compensation is treated as business income.

Also unlike the US that taxes citizens no matter where they live and residents on worldwide income, most countries only tax non-residents on income sourced from within their borders.

Since she is receiving payments directly from the Ltd in pounds sterling that are then converted to dollars as they enter her US bank account, it would seem to be that she has UK source income.

I am well aware of US law. What we need to know is if UK is like most countries and taxes non-residents on source income, and if they do is there a limit that needs to be met before such filing and tax liabilities arise.

Since the Ltd is not withholding non-resident tax and not issuing any tax reporting form, I am inclined to believe there is no tax issue. But then why does not everyone do that which will bankrupt the UK?

 

[Fidget]

As is usual when it comes to taxation, it all depends upon the *whole* of the circumstances.

Have you looked at the links I've provided for you? They give the detail regarding domicile/residence and where it comes to it.. arising/remittance basis.

It's really difficult to give anything other than general pointers. There is no hard and fast 'rule' on it because it all depends upon the individual's situation.

 

[Drmdcpa]

As is usual when it comes to taxation, it all depends upon the *whole* of the circumstances.

Have you looked at the links I've provided for you? They give the detail regarding domicile/residence and where it comes to it.. arising/remittance basis.

It's really difficult to give anything other than general pointers. There is no hard and fast 'rule' on it because it all depends upon the individual's situation.

There is no residency issue. Client does not enter UK soil even for vacation.

Since treaty say it is to be treated as business income is where I am lost. Businesses generally cannot cross geographic borders without both administrative and tax issues.

Further complicating thing US client is organized as a business under US law not just acting as a personal service provider. Thus it is UK business paying US business for services rendered.

If it was most other US tax treaties, I would say the US client made a mistake creating a US business or at least for the UK business not use the US business; rather for the UK client accept payment in her personal name. Thus she would meet treaty terms.

But again US-UK treaty seems to be quite different than most US tax treaties because it says such compensation should be considered business income. This would dictate, it does not matter if the US client is operating as a US person or as a US entity. It is still business income. And that again brings a host of administrative and tax issues.

I guess I have to delve to other sources.

 

[Fidget]

There's HMRC here that you can contact directly - a quick net search will give you details, or even contact the US version of it - IRS. Might be the best way forward to keep yourself right on the matter. You could ring/message the professional body you're a member of - they might have prior experience of this and be able to advise.

Will you let us know how it pans out? Will be good for future reference.

 

[Drmdcpa]

There's HMRC here that you can contact directly - a quick net search will give you details, or even contact the US version of it - IRS. Might be the best way forward to keep yourself right on the matter. You could ring/message the professional body you're a member of - they might have prior experience of this and be able to advise.

Will you let us know how it pans out? Will be good for future reference.

Further research indicates it is taxable when a US business enters the UK market, the revenue is taxable under UK law.

It appears at 19% which surprisingly is less expensive than US tax rate.

I am not sure how things are across the pond, but over here contacting the IRS is one of the last things one would do.

 

[Fidget]

Yes, that's right - businesses are taxable on profits made from trading in the UK, although there rules around it that you can see in the link. So it might boil down to what services are being paid for, and the frequency of them.

HMRC issue briefing: taxing the profits of companies that are not resident in the UK

www.gov.uk

19% is the corporation tax rate here. It is quite low but has been as high as 33% in the past. And it sounds like your IRS is on par with our HMRC. It's usually a last resort to ask them to clarify something, but sometimes has to be done.