What are a US citizen’s tax duties if UK freelancing on a partner’s visa?

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Freelancer’s Question: I am very new freelancer here in the UK, and only eligible to be here thanks to my partner’s visa. That’s because I am an American citizen, so I’m wondering how I go about registering for both UK taxes and payments to the IRS? Any guidance on my status here and my registration and/or tax obligations would be highly appreciated.

Expert’s Answer: Many thanks for your question. You should note that for your situation, tailored advice from a tax and accounting professional with an up-to-date knowledge of both the US and UK tax landscapes is your ultimate answer.

The following is therefore not to be relied upon and is only intended to provide you with some initial guidance as to what you can expect.

First and foremost, US expats must file with the Internal Revenue Service even though they may have no tax liability.

The US Foreign Earned Income Exclusion and Foreign Tax Credits may mean no tax is due on such an expat's income.

As an American citizen wherever you work, or live, you're liable

Be aware, the above is the case because US tax liability is citizenship-based, and the US has worldwide taxing rules, meaning you are liable to tax wherever you work or live.

The threshold for filing with the IRS is based on the standard deduction of each tax filing status. If your spouse is not a US citizen, you usually must make separate returns; however, the threshold is very low. Next, you will want to find out what threshold your income is in, for filing purposes. To that end, you should find this online page helpful.

It should further be of interest to you to note that expats file the standard Form 1040 and are subject to the same US federal income tax rates as US residents.Fortunately, there are provisions in US tax law to prevent you from paying taxes on the same income twice, but that is a subject for another day! And those provisions represent something else to ask of the accountant who I recommended you enlist for bespoke guidance.

Many means and formats available to pay the Internal Revenue Service

Next, should you need to file with the IRS, many means and formats are available, including H&R Block, MyExPatTaxes and Expatfile.

Let's turn now to the UK. If you are self-employed, you must file a self-assessment tax return with HMRC if your income was more than £1,000 in the year.

Other conditions apply as well, so to be sure, use this link to gauge your obligations. Again, ask the recommended accountant about your need to file -- while being aware that such advisers don’t always agree on when to file with HMRC, and when not to file!

Registering with HMRC is my recommendation

From what I understand of your circumstances, you will need to register with HMRC both for Self-Assessment and Class 2 National Insurance. You must register by October 5th, in the second year of your freelancing or business. HMRC can issue a penalty to you if you fail to do so.

Fortunately, you can register for both of these through an ‘HMRC business tax’ account.You will need a Government Gateway user ID and password to sign in. If you do not have a user ID, you can create one.

Then, you will receive your Unique Taxpayer Reference (UTR) by post in 10 working days (21 days if you are not in the UK). You will obtain your UTR faster via yourpersonal tax account or the HMRC app.

Tax reminders, penalties, and support

Even if you don’t download the app, you should receive a reminder by letter or email from HMRC telling you to complete a Self-Assessment Tax Return (SATR) before it is due.Again, beware penalties.

Finally, please note that the tax year in the United States is the calendar year, and in the UK, it is from April 6th to the next April 5th, so the periods are not coincident, and it is the income arising in each tax year that is of interest to the IRS and HMRC.

Good luck and remember, finding that adviser for step-by-step and ongoing support with your tax affairs and obligations is vital.

The expert was chartered accountant Kevin Austin, managing director of Access Financial.

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