Responsiblity for knowing whether foreign tax was paid on foreign source income.

[ironman]

Work for a foreign US company, resident in the UK.

Am I responsible for checking that the US company pays correct taxes against my wages, before offsetting this against UK tax under double taxation rules?

Thanks.

[Lambs]

I, I think it is up to you to claim relief for any tax paid in another country, against income or gains which are also taxable in the UK. This would normally be done through your UK Self Assessment Tax Return. It is your legal responsibility to ensure that anything claimed or disclosed on your return is factually correct, but not necessarily that the 'right amount' of foreign tax has been deducted. i.e. if your American employer has deducted $10 when it should have deducted $15, then you can and should claim relief for $10 only. If you think that your employer has withheld the wrong amount of tax, then it might also be advisable to mention this on your UK return, because the UK Inland Revenue might also think that the wrong amount has been deducted - their first reaction could otherwise be to assume that you have filled in your tax return incorrectly, and to enquire into the return.

If the amount of tax in point were relatively small, then it would not perhaps be a matter of great importance; however, on the basis that US tax is being withheld from your salary, it is quite likely that seeking direct advice from a suitably qualified professional, would be a very good idea, before approaching the Inland Revenue. There is the possibility that your income might not actually be taxable in the UK, if it is already taxable in the US, having regard to the treaty between the two countries.

Regards,

Lambs

[kirstie.williamson@a]

I think we need to know a bit more about your circumstances before giving a definitive answer.

If you are working for a US company with a US employment contract but all your duties are performed in the UK and you are UK resident then the Double Tax Treaty will not help you much. Treaty protection under Article 15 applies only if you are in the UK for less than 183 days in rolling 12 month period and your employment costs are being borne in the US.
Where are you working in the UK ? Does the US company have a branch or subsidiary ? Are your employment costs being recharged to the UK entity ? If so then you are liable to UK income tax.

The US company should have ceased withholding when you left the US and you should be paying UK tax under PAYE.
The company should also apply for a certificate of coverage for you to allow you to remain within the US FICA scheme, otherse you and your employer are both liable to UK National Insurance Contributions.

What about a pension ? Do you and your employer contribute to a 401(k) scheme ? Employer contributions may taxable as income in the UK and you may not get tax relief for your own contributions unless the scheme has corresponding acceptance in the UK.

Who is dealing with your US tax returns ?You will continue to be liable to US tax on your worldwide income even though it is also taxed in the UK, but you can claim the Foreign Earnings Exclusion and Foreign Housing Deduction and Foreign Tax Credits for your UK tax paid. There are rules ad time limits for doing this and you will need to spend a qualifiying period of time in the UK to get the various exemptions.

Did you complete a form P86 when you arrived in the UK to establish your residence and domicile position and to inform the UK tax authorities of your arrival ?

I think you require some professional assistance with these areas.

Please let me know if we can help.

Kirstie Williamson
Allotts
01302 349 218