HMRC and double taxation - any forms other than P85?

[simonschus 58]

Hi all,

I'm aware that there is a double taxation treaty between the UK and the US.

I'm going to be getting paid from a UK employer for a couple of months after moving over and that will get taxed by the HMRC. When that all stops, I'll submit the P85 to the HMRC and presumably will get back any overpaid tax. I will have to list those earrings on my IRS Tax Report at the end of the US tax.

Other than the P85 and the IRS tax form, do I need to fill in any other forms for the UK? Do I need to fill anything in for the double taxation? I anticipate that I'll be earning between $45 to 60k over the entire tax year combining actual UK and anticipated US income.

Simon.

P.S. K1 visa.

Edited February 27, 2016 by simonschus

[Nich-Nick 3,354]

You will report on your 2016 US tax return (a year from now)

A) any income from the UK employer paid to you from Jan 1, 2016 (even before you move). The exception is if the payment was for work done in December that didn't make it to you bank account until the new year. So your first check of 2016 might not count if it was paying you for work done in 2015.

B) any income from a US employer.

C) any Interest or dividends you might be paid on UK accounts.

"A" above is foreign income and you will qualify for filing IRS Form 2555 Foreign Earned Income Exclusion as part of your tax return. So while it is reported, the US tax it would generate will be subtracted off your tax bill. Foreign income is self reported meaning you don't have to send in a document to the IRS showing the income. You simply fill in a line saying what you earned and they believe you. But save any pay stubs you get so you have a record in case your tax return would be chosen for audit.

"B" above is fully taxable

"C" above is reported and taxable because the IRS calls it unearned income, which is not covered by the foreign earned income exclusion. But if the UK has taxed you on the investment earnings, you can use the foreign tax credit to reduce your US tax by the amount you already paid tax on. Note: you can't use the foreign income exclusion on your wages and also use the foreign tax credit on the same wages. That would be double dipping to exclude the wages fully, then try to exclude the tax you paid. But because you didn't exclude investment earnings on Form 2555, you could take the tax credit for those if the UK already taxed you on those investment earnings.

Even Americans take foreign tax credits. I just finished doing my taxes and have an $85 foreign tax credit. It's because some of my mutual fund type investments have foreign sources and are taxed at the foreign source. I have no clue what countries, but luckily my end of year financial statement tells me how much was paid in foreign taxes. If you find out you have investments taxed in the UK, then you would need to know what you earned and how much tax you paid on those.

[simonschus 58]

Thank you for your guidance which I wasn't actually expecting in such detail

Aside from the P85, I think I'm correct in assuming that nothing needs to be filed prior to end of the tax year either with the HMRC or the IRS. This is because IRS Form 2555 gets filed with the IRS Form 1040 at the end of the US tax year. The only thing that I'll need to do in advance is getting an I'll need to get in advance is an SSN so I can file Form 1040 jointly with my partner who is a USC, but we'll be getting that anywhere soon after arrival in the US. When filing IRS Form 1040, I'd have to file it in paper form as I would be prohibited from filing it electronically because of filing jointly with Form 2555. If any of that sounds like a complete misunderstanding then I'd appreciate somebody picking me up on it.

I have a linked question: When I move over to the US, do I need to let the UK banks know so that they can send information to the IRS/HMRC for my US taxes? My intention is to keep a UK address on my UK bank accounts so I'm unclear what I have to tell my bank in order for them to do what they need to do in line with FATCA and FBAR. I'm happy to tell my banks but I really want to keep everything going to a UK address for simplicity.

Simon.

Edited February 27, 2016 by simonschus

[Nich-Nick 3,354]

Thank you for your guidance which I wasn't actually expecting in such detail

Aside from the P85, I think I'm correct in assuming that nothing needs to be filed prior to end of the tax year either with the HMRC or the IRS. This is because IRS Form 2555 gets filed with the IRS Form 1040 at the end of the US tax year. The only thing that I'll need to do in advance is getting an I'll need to get in advance is an SSN so I can file Form 1040 jointly with my partner who is a USC, but we'll be getting that anywhere soon after arrival in the US. When filing IRS Form 1040, I'd have to file it in paper form as I would be prohibited from filing it electronically because of filing jointly with Form 2555. If any of that sounds like a complete misunderstanding then I'd appreciate somebody picking me up on it.

I have a linked question: When I move over to the US, do I need to let the UK banks know so that they can send information to the IRS/HMRC for my US taxes? My intention is to keep a UK address on my UK bank accounts so I'm unclear what I have to tell my bank in order for them to do what they need to do in line with FATCA and FBAR. I'm happy to tell my banks but I really want to keep everything going to a UK address for simplicity.

Simon.

You can e-file with a Form 2555 as part of your tax return. Paper filing is more about if you are a non-resident alien at the end of 2016. A non-resident alien can't file a joint return with a resident (your wife). But if your spouse is a USC, then you can both elect for you to be treated as a resident alien for all of 2016 and file jointly. That requires a written statement signed by each of you. There isn't really a provision for submitting that signed statement electronically as part of the tax return, thus the paper filing your first year with the statement as one of the included pages.

Bank account question. I'm not sure if UK has signed on to reporting to the IRS or not. They resisted and voted(?) against it the first year or so of FATCA. I just remember reading an articled on the subject in 2013 or 2014. I haven't paid much attention to that since. I can tell you that my husband still maintains a bank account in the UK and a UK mailing address. We file FATCA every year with the tax return. FBAR is a report that goes to the Treasury Department (not the IRS or part of tax return) and we file that as well. So no communication from the UK to the IRS happens on his behalf. I don't believe the US requires a financial report from the foreign institution on your behalf. I think it is more a way to catch non-compliant persons if they can convince the foreign government to rat on them. Anyway, maybe my husband should tell the bank his US address, but he hasn't. He has no interest or income from the bank account that he is hiding offshore. Just something he never bothered to do.

[simonschus 58]

Wonderful, thank you for explaining the reasoning behind why people talk about paper-filing for the first year. I knew about the written/signed statement but I didn't realise that the paperfiling was solely because of the written statement.

As for FATCA and FBAR, I've been reading up a little bit on bank websites and I'm personally unsure about the UK bank side of things. As such, I'm going to do some reading and try to work it out, as well as consult with the banks directly anyway. From reading the various UK bank websites, I'm under the impression that the UK banks will soon/already be identifying anybody who they believe might a US resident for tax purposes (presumably this mechanism is going to be quite flimsy though (I'd imagine people are identified through a means of US mailing address; a significant number of transactions sent/received/made that involve an entity in the US; persons identified by a relationship manager; persons self-certifying; persons whose nationality or past addresses are in the US) .After identifying them, I think the UK bank is supposed to offer an annual statement to HMRC who can then report to the IRS. However, that may be me misunderstanding and misinterpreting everything because I am not an accountant nor a lawyer. I'm also under the impression that 2016 might be the first year that this arrangement is formally starting. But I guess I'll find out more as I move on.

Simon.

[Nich-Nick 3,354]

What you said makes sense about persons with US addresses and such would be identified for reporting if/when the UK gives into US pressure. My husband's account just sits there and his UK Vonage bill drafts out of it monthly and occasionally his UK PayPal purchases. Also his UK credit card bill automatically drafts when he uses it while actually in the UK or to buy something from Amazon UK or Argos to be delivered to UK family. I don't think there are any US identifiers for transactions. Anyway, the US government knows where the account is, the account number, and the highest balance each year from our FBAR. I'll put tell the bank he moved on his "to do" list.

[simonschus 58]

Thank you Nich-Nick. All my friends are going to be so jealous once I've told them how much fun I've had tonight reading about FATCA and the OECD's Common Reporting Standard

From how I understand it after reading a few government reports, opinion pieces, bank policies and relevant legislation: my interpretation of the rules was correct and that it does indeed begin in 2016 onwards, meaning if my bank thinks I'm US resident then they'll want to report details of my accounts to the HMRC. I'm unclear of whether the HMRC will report on everybody to the IRS do some filtering and only submit those individuals/entities above some balance threshold. Nonetheless, the UK bank reporting requirement goes beyond FATCA (which is US-specific) though and into the Multilateral Competent Authority Agreement (which is not US-specific, and which the US has not signed up to anyway but the UK has though, hence why it is presumably important for any ex-pat and not just those moving to the US). For most people, it won't have any impact at all either in their effort or in implications (particularly if they're not required to file FBAR because of the $10,000 "bank account" aggregate).

Anyways, those are my musings as somebody who has no background in the taxing and accounting area. I hope if I'm wrong in any capacity that somebody will correct me as I wouldn't want (my) misinformation to affect anybody! I just thought I"d start the discussion as I've not seen it mentioned too often on the UK forum. I appreciate that this might be discussed in the tax forum, but this topic was primarily aimed at UK-specific issues.

But I'll probably pipe down now and wish y'all a lovely evening!

Edited February 27, 2016 by simonschus

[simonschus 58]

Hi there all,

 

I hope everybody is doing wonderfully  I'm just posting a follow-up question on a post I wrote this time last year now that I'm actually filling in my US Tax Return. In 2015, I worked remotely for a UK employer since filing for AOS and receiving my EAD/Green Card.

 

I have earned zero income with a US employer, but did earn with a UK employer for the 2016 tax year. This was divided as:

1. January-May whilst living in the UK;
2. September to December whilst living in the USA, but still working my UK employer remotely.

 

Will both 1 and 2 be reported on the IRS Form 2555 (Foreign Earned Income)? Or will 1 only be reported on IRS Form 2555, whilst 2 is only reported on IRS Form 1116 (Foreign Tax Credit)? The previous post indicated only IRS Form 2555 but I thought I'd clarify about if anybody knew if there was a preferred route.

 

It should be noted that I didn't file form P85 and hadn't intended on doing so just yet.

 

Simon

[Adam&Allison 128]

12 hours ago, simonschus said:

Hi there all,

 

I hope everybody is doing wonderfully  I'm just posting a follow-up question on a post I wrote this time last year now that I'm actually filling in my US Tax Return. In 2015, I worked remotely for a UK employer since filing for AOS and receiving my EAD/Green Card.

 

I have earned zero income with a US employer, but did earn with a UK employer for the 2016 tax year. This was divided as:

1. January-May whilst living in the UK;
2. September to December whilst living in the USA, but still working my UK employer remotely.

 

Will both 1 and 2 be reported on the IRS Form 2555 (Foreign Earned Income)? Or will 1 only be reported on IRS Form 2555, whilst 2 is only reported on IRS Form 1116 (Foreign Tax Credit)? The previous post indicated only IRS Form 2555 but I thought I'd clarify about if anybody knew if there was a preferred route.

 

It should be noted that I didn't file form P85 and hadn't intended on doing so just yet.

 

Simon

 

Hey!

 

Nich-Nick has been suspended from VJ, so unfortunately she won't be able to reply to this thread. However, this is an answer she asked me to give you;

 

Foreign Income Exclusion only applies to while he was physically present in the UK. The form asks on what date he left the UK and calculates his exclusion based on that.  He can't exclude part 2 of his income but he may get credit for taxes already paid on it.

[trudi 1,317]

Suspended , why ever for?

 

Nich-Nick is the best source of help & advice for those of us from the U.K.

 

I wondered if everything was ok as she hasn't been around for ages, sad news

[yuna628 9,689]

8 minutes ago, trudi said:

Suspended , why ever for?

 

Nich-Nick is the best source of help & advice for those of us from the U.K.

 

I wondered if everything was ok as she hasn't been around for ages, sad news

You can still PM her, in fact I'd recommend it as she's a super wonderful person and still answers questions.

[simonschus 58]

10 hours ago, Adam&Allison said:

 

Hey!

 

Nich-Nick has been suspended from VJ, so unfortunately she won't be able to reply to this thread. However, this is an answer she asked me to give you;

 

Foreign Income Exclusion only applies to while he was physically present in the UK. The form asks on what date he left the UK and calculates his exclusion based on that.  He can't exclude part 2 of his income but he may get credit for taxes already paid on it.

Thank you for passing on the message. I believe that Nick-Nick's interpretation is the same as my second option (i.e. Form 2555 and Form 1666) so at least I know I'm on the right track!

 

More importantly..... SUSPENDED??????!!???!??!?!?!?! I won't pry but that makes me sad. I might PM in a few days.