In the digital era, many American entrepreneurs migrate to overseas locations while successfully running their businesses back home. Regardless of where you currently reside, you’re liable to pay taxes and report income from worldwide locations in your yearly returns. Since you live in the UK, you’re subject to taxation regulations in both countries. When filing returns with the UK tax authority, Her Majesty’s Revenue & Customs (HMRC), you’ll declare the income your business generates even if it is located and registered in the US. You’ll also complete and submit the applicable forms according to the type of venture you run, whether a sole proprietorship, partnership, LLC, or corporation.
Managing a Self-Employed Business
If you earn upward of $400 from a self-employed business, you’re liable to declare the income along with the assets you hold in foreign bank accounts. Keep in mind that such entrepreneurs must pay a U.S. Self Employment Tax of 15.3% inclusive of Social Security and Medicare contributions. At the same time, bilateral treaties permit you to pay taxes in the UK and claim credit for the amount dollar for dollar on your US return. Since tax laws for business entities can be complex and complicated to understand for a layperson, rely on the expertise of an experienced expat tax CPA to guide you in the right direction.
Managing an LLC
If you manage an LLC registered in the US, the company is considered a Disregarded Entity for tax purposes. You’ll report the income earned by the company through your personal tax return and also write off business expenses from your taxable income. You’re also subject to the Foreign Account Tax Compliance Act or FATCA reporting, where you must report all assets held in foreign bank accounts.
If, at any time during the fiscal year, the aggregate assets held in all bank accounts are more than $10,000 by as low as $1 or even a single day, you’ll include the information in your return. This law applies to US expats who may be a signatory to an account even if it is registered in another user’s name. When adding up your foreign assets, remember to include information about pension funds, investment portfolios, and the company bank accounts that you may control for conducting business.
Managing a Corporation
US expats owning stock in American companies must declare their income from dividends in their tax returns. If you sell the stock and earn capital gains profit, this income is also subject to taxes. Keep in mind that the UK levies a capital gains tax of 10% or 20% depending on whether the assessee is a basic-rate or higher-rate taxpayer. Do check with your tax consultant for more information since tax regulations change from time to time.
Managing the taxation facet of running an American business as an expat living in the UK can be complex. It is advisable to rely on the advice of a professional to stay compliant.