Any Americans self-employed in the UK?

[twohearts]

Wondering if anyone is in the same boat as me and knows what to do with tax issues. Here goes:

I'm a US citizen residing in the UK on an EU (not UK) ancestral passport and am self-employed.

The type of work I do is service-based and online (writing) so I have some US-based clients who pay me for my services into my US bank account in dollars, and I have some UK-based clients who pay me for my services into my UK bank account in British pounds.

As a US citizen, I am well aware that I am responsible for universal tax. When I was an employee in the UK, it was easy -- my employer paid payroll taxes on my behalf and I simply reconciled to the IRS on my 1040 every year.

But now that I'm self-employed I'm not sure how best to handle it. Do I pay quarterly taxes to the IRS on the income paid to me in dollars, and quarterly taxes to HMRC on the income paid in pounds, then reconcile ALL the income on my 1040 annually in April?

Any US citizens living in the UK who have been in this situation before and can share how you handled?

[lljkk]

Don't you have earned foreign income exclusion, do you earn too much?

I would have thought file quarterly with HMRC & annual the 2555EZ or whatever that form is called, with 1040.

[twohearts]

I do have income exclusion (I WISH I earned enough not to qualify!!) but my issue is with the American dollar clients paying me on 1099.

If all my clients were in Britain, paying in British pounds into my British bank account, I would do as you suggest - file with HMRC quarterly and reconcile on the 1040 annually using the exclusion.

However, I am just concerned about the fact that the American clients are paying me on 1099 in dollars into my US bank account and that this should be claimed quarterly to the IRS.

But then what about HMRC? Should they be getting a quarterly tax cut from the dollar income earned from American clients, given that I'm physically located in the UK?

[lljkk]

gotcha... okay, fair enough, that's complicated!! Sorry I can't give definitive answers. Even if the American clients pay you in dollars, if you are tax-domiciled in UK, that makes me think that you can count the income from American clients as income earned outside the USA. Just like corporations only pay corporate tax in one country. Still would call yourself as UK taxpayer & file here. But... I'm not a tax expert :).

Unless you want to count yourself as tax-domiciled in USA (if you even qualify as not tax-domiciled in UK), and then you'd be filing for exemptions from UK govt & paying full USA amounts. No system expects you to pay income tax to both govts when it's a fairly small total income, so makes sense to go with country where you live.

I know IRS is scary but you sound like way too small fish for them worry about. I file my forms as fast as possible, over-estimate all income & hope for the best.

[IceMaiden73]

You file an annual return with HMRC and deduct any us tax that has already been paid on the same income

[twohearts]

Thanks, @IceMaiden73

I forgot about this thread and actually meant to check back in after spending an excruciating hour on the phone with IRS International, who confirmed:

-Your tax obligation is to the country in which you're physically based. So even if all my clients are in the US and money is being earned in USD, if I'm performing the service in the UK, I owe HMRC

-Of course, as a US Citizen, I'm liable for universal tax so I'll still need to file but can exclude based on what I'll have already paid to HMRC

-The IRS representative said that one key thing I'll need to do is to get a letter from HMRC confirming that I've paid into National Insurance, as this is the only way to avoid having to pay Social Security tax to the US. Apparently, on the SE portion of the Schedule C, there's a section dealing with Social Security and you're meant to write "see letter" and attach the HMRC letter that proves you're paying the equivalent of SS to another country

Whew! Actually filing all this is going to be a whole other nightmare, but at least now I feel clearer on what to do and thought I'd post this info here in case anyone else is in the same boat (US Citizen freelancer working remotely out of the UK).

[irwin2lm]

@twohearts Hi - I know this was over a year ago, but do you remember what line you entered in the "See Letter" note in Schedule C? I'm in the same situation and I'm really struggling with what to do next. I've already received my certificate from HRMC to prove my income was in the UK, but I'm not sure how to file that in the US! Thanks!

[twohearts]

@irwin2lm You know what, in the end it was such a pain that I just threw money at Greenback (expat tax preparation service) and had them do it for me.

This was the right choice for me as I have clients in both countries paying me in various currencies to different bank accounts so I had a proper mess on my hands that I really needed a professional.

Sorry I can’t be more helpful! Good luck!

[gigi556]

Interesting thread as I'm YS citizen thinking of going self employed. Who did you use for tax prep? Can you PM me info?

[irwin2lm]

@twohearts - I completely understand! Thanks for your help :)

@gigi556 - I ended up calling the IRS and got it all figured out. Once I was walked through it all, it was actually easy! I think my problem was I was trying to do it online with software (e.g. TurboTax, H&R) but it ended up being way easier just to go through the workbooks in PDF, especially since I was going to have to mail them in anyway.

I'll PM you!