P85 queries

[Bug&Bug 147]

Hello! 

 

I think this one is a question for HMRC but now they are not even putting me on hold just "we are busy bye". So maybe Im lucky and some of you know the answer to this.

 

Im going to continue to work remotely for my UK employer for few months ( under 6 months)  while in the US under my current contract, so I will not be receiving a P45 before I leave the UK. 

 

1. Should I wait to complete the P85 until I finish my UK employement? I cant see anywhere in the instructions about my particular case.

 

2. I assume if i wait to submit the P85 I will continue to pay national insurance and wont be able to claim it back. Is this right? 

 

3. And does the US recognise the national contributions paid in the UK and other european countries and if yes what do I need to do?

 

My UK employer are absolutely hopeless when it comes to getting information on taxes ( or anything HR related for that matter) its been more than a month and they still cant give me any answers so I have given up with them.

 

So any insight will be helpful. Thanks!

[Bug&Bug 147]

Repliying to say i managed to get through and it sounds like I can actually submit the p85 without the p45. 

 

We see what happens!

[Wuozopo 4,293]

@Bug&Bug
 

According to tax treaty agreements between the UK and US, once you move to the US to live, your earnings are taxable to the US (IRS) and no longer to the UK (HMRC). That is even if you are working for a British employer. That employer needs an IRS Employer Identification number (EIN) and they need to withhold US tax amounts from your checks and submit that to the IRS (online) each paycheck. They have to issue an IRS W-2 wage statement to you and submit same to the IRS at the end of 2021, showing how much they paid you in the tax year. It includes how much you were paid and how much was submitted for federal taxes, Social Security and Medicare contributions. 
 

 

Edited February 8, 2021 by Wuozopo

[Bug&Bug 147]

Oh Im dead sure my employer is going to mess up and im going to pay taxes in both countries. Dead sure.

[bharats 7]

Does your employer have any US presence or US business dealings?

 

And do you continue to be paid in Pounds Sterling.

 

If so, assuming you are working in the USA for under 5 years for them, could that fall into the area where maybe at least your employer doesn't have to pay US payroll taxes?

 

I don't know, this is a question I'm hoping someone who is well versed with the US UK tax treaty can answer.

 

Cheers,

B.

[Wuozopo 4,293]

2 hours ago, Bug&Bug said:

Oh Im dead sure my employer is going to mess up and im going to pay taxes in both countries. Dead sure.

You can be changed from “employee” to “contractor” when you move. Those are IRS terms. Then the employer does not have to hold out taxes US tax. He pays you the full wage with no taxes taken out. You are responsible to pay in to the IRS yourself. When you file, you count those wages as a self-employed contractor. I file as a self-employed contractor because I don’t work for anybody. I do IT work for individual clients. For tax filing, it is like I own a business. I have a Schedule C and Schedule SE as part of my tax return. TurboTax handles it well.

 

You need to figure out how to get your employer to take you off UK tax roles when you move. Maybe the P85 helps. I know a VJ friend looked into it and there is some code he flags your pay with that signals HMRC that you are not taxed. It doesn’t have to be exact by date because the IRS can’t look up your POE.  Maybe pick a date of last paycheck with UK tax as a break point, then next paycheck is contractor in US. I believe your employer still needs a US EIN to issue you a 1099 showing how much he paid you as a contractor—-not what he paid you while you were his employee living in the UK. But even that has a work around since it’s not a permanent thing. If I earn over $600 from anybody, they are required to issue me a 1099 wage statement as a contractor. I never got one from one business. Somewhere on the tax return or TurboTax there is the question “Did you earn any wages requiring a 1099 that you did not receive a 1099?” You tell what you earned and from whom. So you are reporting all your wages for tax purposes even though the client did not issue a 1099. 

[Bug&Bug 147]

My understanding ( wich is limited and very likely wrong) was that once i submit the P85 HMRC provides my employer a NT code and then i report it to IRS as foreign income ( ill probably need a tax advisor for the first year to do it right).

 

I dont know if HMRC will however consider me a uk resident until the end of the FY so will tax me anyway.

 

To be fair, its only 2 or 3 months and gives me a soft landing so any income is welcome and if i have to pay some more tax oh well. 

[Wuozopo 4,293]

21 minutes ago, Bug&Bug said:

My understanding ( wich is limited and very likely wrong) was that once i submit the P85 HMRC provides my employer a NT code and then i report it to IRS as foreign income ( ill probably need a tax advisor for the first year to do it right).

I know the P85 signals your departure, I just wasn’t sure if it trickled down to payroll at your job. I quit my job completely a month before moving so have no personal experience.
 

You report income received after you reside in the US as income, not foreign income. It will be just like income your hubby receives or you receive if you take a US job. You will also report 2021 gross income you earned prior to entering the US. It’s all income because joint filers report worldwide income.

 

Then you separate out your foreign earned income (that part while you still resided in the UK) and claim an exclusion on Form 2555. That exclusion removes any taxes you would be charged for the foreign earned income you reported. You are fully taxed on the income you earn once living in the US, even if the employer is foreign. It is US income (not foreign) because of your residence. 

[Bug&Bug 147]

Omg the terminology itself is so confusing lol but I think i got it, so because the US FY starts in january I claim an exclusion on my income before POE. 

[Wuozopo 4,293]

46 minutes ago, Bug&Bug said:

Omg the terminology itself is so confusing lol but I think i got it, so because the US FY starts in january I claim an exclusion on my income before POE. 

You report.... then exclude anything paid to you from Jan 1, 2021 until your departure.  If the paycheck arrived on Jan 10, then that’s your first income in 2021. You don’t figure up what you “earned” Jan 1, if that makes sense. You just start with the first paycheck you got in 2021, no matter what dates it covers. You got it in 2021. And you might want to make the final break on a payday. If you know your paydays, then you may want your P85 to reflect ending on a payday, even if it’s slightly after you arrive in the US. It would make an easier transition. You might want to find payslips coving that time to bring with you so you can recall your earnings a year from now when you are actually filing 2021 taxes.
 

Frankly, when the wife did our taxes my year of immigration,  I had nothing to go by. I knew my general monthly salary and made up something to report (and exclude). The IRS does not require anything on paper from you to prove your exact income. Your paperwork will just help you remember. The IRS never questioned my made up amount that was as close as I could get. The IRS is not as scary as people assume. And they are not nearly as picky as Immigration in my opinion.

[Dags 134]

hey, anyone has got experience on how long it takes to receive HRMC response/letter from UK to US? It's been a month since I filled it in online, and haven't heard, nor received anything..