Contractors' Questions: How to be tax-efficient when IT contracting in the US?

Contractor’s Question: I have been working as an IT project manager in the UK for the past two years via my limited company and have been paying taxes as a director of the company.

My current client in the UK offered me to manage a project in the US at one of their sites in 2015. My current UK contract would be extended and I'd fly every month for three weeks to the US. Salary and expenses will be paid by the UK client to my UK business bank account. The UK client has agreed to sponsor my visa.

I would like to continue to pay tax and NI in the UK but will I be liable for US taxes, as I will stay more than 183 days in the US? Would it make financial sense to set up a LLC in the US and try to mitigate tax there, rather than paying tax twice?

Expert’s Answer:  The consensus among our colleagues in the US is that if your UK Company is doing business in the US, it should file a US corporate tax return. As it is a UK Company, it will also need to submit a tax return to HM Revenue & Customs. 

It seems likely that you will remain UK tax resident and become US tax resident. Accordingly, a US individual tax return has to be filed relating to the salary paid to you, the contractor, by your UK Company for the work you carried out in the US. Generally though, there should be no double income taxation issues as there is a bilateral income tax treaty between the UK and the USA. 

Notwithstanding these generalities, the immigration rules and tax system in the US are phenomenally complicated. For example, while all States collect the Federal Income Tax, many impose an additional Local Income Tax.  

While you should be able to obtain a lot of information from the Internal Revenue Service’s website, we recommend that you strongly consider consulting an expert to get definitive advice, both relating to US immigration and American tax law. To source these advisers, you could visit the American Embassy website and, on the home page, click ‘A to Z Site Index’ (top right); then ‘American Attorneys in the UK’ and also ‘U.S. Attorneys in the UK.’ Taking the advice of these specialists will help you to ensure that you stay on the right side of US immigration and tax regulations.

The expert was Mike Phillips of its international, consultants in tax and finance.

Editor’s Note: Related Reading –

Contractors’ Questions: How to start contracting in the USA?

Contractors’ Questions: Is contracting in the USA VAT-free?

Contractors’ Questions: How to get my fee from a US client in pounds?