NIC for Non UK Resident living in US

[SG1]

Hello

I left the UK on March 28th 2005 to move to the US. My contract with the UK company was terminated on that day and I was hired as a local in the US for the US subsiduary. I am paid in the US and also pay social security.

The UK company are about to make a bonus payment to everyone (including the US staff) from the UK. Someone in HR over there told me that as I am British and have not been out of the country for 3 years, They will withold NIC from the bonus.
I have explained that as far as HMRC are concerend I am now a non resident (P85 filed, Live in the US, and will be out for a period covering a whole tax year).

Please could someone confirm whther or not non UK residents (even if they are British) are liable for NIC on wages even if paid in the UK?

[tax me less!]

1. The short answer is, yes, the income is subject to UK NIC.
2. In addition the advantage is that it will save you paying Class 3 contributions as you are presumably doing/planning to increase your UK State pension.
3. Do not forget that the income is taxable in the US, so as there will be no US withholding taxes you may need to make estimated payments of US tax, if you owe US taxes after foreign tax credits. The income is of course also taxable in the UK, so depending on the amount and whether it is subject to higher rate UK tax you may owe or expect a refund of UK tax.

[SG1]

Thank you for your help.

Does that mean that US citizens working in our US company will also pay NIC on the bonus paid by the UK subsiduary?

So basically, even if I never come back to the UK and become a citizen, I will have to pay NIC on any salary paid by the UK subsid even though I am not a resident? This seems to contradict the totalisation agreement between the US and UK which makes sure that no has to pay social security in both countries. I am definitely liable for social security in the US as I was hired in the US and work for the US company.

Actually we do not and will not pay class 3 as we have no intention of moving back permanently to the UK.

[kirstie.williamson@a]

If the bonus all relates to US duties then it should not be taxable in the UK.

If the bonus covers the 2005 calendar year (say) then it will be taxable in the UK to the extent that it relates to UK duties ( presumably the period 1 Jan - 28 Mar 2005) and taxable in the US thereafter.

You need to know the period the bonus relates to.

Presumably the UK subsid will not tax a deduction for the bonuses paid to employees in the US but instead the costs will be recharged to the US parent who will get the deduction ?

KW

[kirstie.williamson@a]

If you are not an employee of the UK company I cannot see how they have an obligation to withhold Class1 NIC on your bonus. They may have to pay employer's NIC but that is not your concern. Payment of NIC is not based on nationality so the fact that you are British is not relevant. If you are only on assignment to the US company then the position would be different but if your UK contract has actually terminated and you have a US contract then that does not appear to be the case.
You should go back to your HR department again and ask for clarity on this point. Incidentally why is a company paying bonuses to individuals who are not employees ?

KW

[SG1]

Thanks Kirstie

I should have been a bit clearer about the bonus. I used that word bonus but itÂ’s actually a buy back of share options.

During 2005, all share options granted related to my US employment and therefore will be taxed here and the social security charge will arise here.

There were also some options granted during my UK employment in 2004 and I was able to keep them unexercised as I was still working for a company in the group. Having spoken to HMRC on the tax implications I have been advised that any gain on these will be time apportioned as the UK has there is a tax treaty with the US. Therefore they will look at the time period between grant and exercise (buy back) and my residence at each point. In my case, the UK will only be looking to tax me on half of the UK related share option.

What the gentlemen was not so confident about in his advice was the NIC charge on the UK related options and this is really what I need clarification on.

Having hunted around a bit on the HMRC website this is what I have come with and my interpretation.

This is what HMRC says:
The NIC charge will depend on country of residence at the time of grant and then country of residence at the time of exercise. If there is reciprocal agreement between the 2 then this is what will govern the charge.

My interpretation:
Now there is one between US and UK. IF someone is seconded to the US for less than 5 years and is still employed by the UK company, then they will still pay NIC and no US social security. Then in the case of share option gains, they will pay NIC.

However in my case I am not a secondee and not still employed by the UK company and am in the US indefinitely. The reciprocal agreement in this case says that a person will pay the social security of the country that they are employed in.

So I have concluded from this that I will be exempt for NIC and pay social security(US) on the UK related share options even thought half of the gain can still be taxed in the UK.

In the case of countries that the UK doesnÂ’t have agreements with, a person is only liable to pay NIC on payments made in the UK in the first 52 weeks of departure. So even applying this to my case it seems that I am only liable for social security (US). See below.

“Under regulation 146(2) Social Security (Contributions) Regulations (SSCR) 2001, liability to pay UK social security contributions continues for the period of 52 weeks from the date of leaving the UK to work abroad. This is treated as an absolute 'cut off date' and payments made after that date are not included in earnings subject to NICs. As the exercise of the option is after the period of continuing contribution liability, the HMRC's practice is that no Class 1 NICs are payable.”

Do you agree with my assessment?