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How to get withholding tax back from US inland revenue nearly 2 years after the work was completed?

(11 Posts)
Xxmmaass2015 Fri 18-Dec-15 23:42:26

My husband (UK taxpayer) did some freelance work for an American university in February 2014, and the Inland Revenue Service deducted 30 % of his fee as withholding tax. HMRC in the UK assumed it would be refunded so he paid tax on the full sum in the UK, instead of on the 70 % he actually received.

IRS have been dragging their heels on refunding it, but when he spoke to them in Feb 2015, they said he would probably be given his money back by October 2015. October came but nothing happened, and every time he tried calling America he always ended up on hold for about an hour then would give up.

He just received a letter saying IRS needs another 6 months before they decide what action to take (i.e. in May 2016 he will get a decision on whether he even gets his refund, on money that was deducted from his earnings in February 2014).

He was counting on getting this sum of money in order to pay his upcoming tax bill by 31st January. What can we do?

ceeveebee Fri 18-Dec-15 23:58:58

Are you sure your DH doesn't need to claim it on his UK return?
It certainly used to be the case that if you paid tax in two countries, and there is a double tax treaty in place (which there is between UK and US) then you would claim the Foreign tax back on your UK tax return?

(Disclaimer: I am an accountant but very out of practice!)

RB68 Sat 19-Dec-15 00:17:41

OK weirdly I have been dealing with something similar this week albeit India

India has what is called a reciprocal agreement with the UK - do US have this too?

I spoke to tax office here and got someone a) with a sense of humour and b) knew what he was talking about minor miracle

Witholding tax is taken in country where money earned as a profit element
In the UK you claim back at end of tax year HOWEVER what you get back varies

It is proportional so the amount you earnt in country compared to overall turnover, then the tax is compared to your overall profit in UK and tax is applied proportionately - its really tricky to calculate and for us it works out less expensive to register in India and just pay a lower rate over there when registered.

I placed a call to the tax office and they returned it - I kept missing them but first returned call was within 24hrs and it was third time lucky before they got me.

you should not have been taxed on the full amount in the UK if there is a reciprocal agreement in place

RB68 Sat 19-Dec-15 00:19:58

I should say it is the UK tax office that should be handling this

Xxmmaass2015 Sat 19-Dec-15 00:26:16

That is very helpful, thank you all.
My husband's accountant thought he would be refunded the US tax from the IRS, and advised him to proceed on that basis. But it is not her area of expertise, as she usually works with farms, so quite possibly she has made a mistake.
I will suggest that he get in touch with HMRC (cheaper than phoning America and staying in a phone queue for an hour), and also suggest that his accountant deal with it.

He was worried that she would charge him a lot for dealing with trying to recoup the costs from America but if it is her error then she shouldn't charge him at all really! Thank you.

ceeveebee Sat 19-Dec-15 00:29:46

Here's a link to the guidance notes for filling out the foreign income section of the U.K. Tax return if it helps!
www.gov.uk/government/uploads/system/uploads/attachment_data/file/420047/sa106-notes-2015.pdf

ceeveebee Sat 19-Dec-15 00:31:03

Page 11 for entering the foreign tax paid on self employment income

Xxmmaass2015 Sat 19-Dec-15 00:31:11

Actually I just remembered something else which might be relevant.
When my husband did the work in the American university in Feb 2014 there was some paperwork issue which was why the 30% was deducted.

He returned to do the same work in Feb 2015 but the paperwork was sorted so the US tax office didn't deduct anything. Don't know if that sheds any light...?

Xxmmaass2015 Sat 19-Dec-15 00:31:52

Thank you!

ceeveebee Sat 19-Dec-15 00:37:41

If I remember correctly (and it's been 10 years since I worked in finance!) if the overseas company/contractor can apply for a US TIN (tax ID number) then they can fill a form in that means that the US conpany doesn't have to deduct the tax anymore. It's called a W8BEN I think (really scraping the bottom of my memory now!!) or at least that's what applies to limited companies. Could that be the paperwork that your DH filled in?
In any case I think if tax was withheld then it should have been claimed back on UK tax return as per the link. Maybe not all of it though, will depend on your DH UK tax rate.

RB68 Sat 19-Dec-15 18:06:54

Yes for India its a PAN no. But fundamentally I wouldn't rely on it for the tax bill unfortunately as there is no guarantee you will get all of it back

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