Contractors’ Questions: How to freelance for a US firm from the UK after living in France?

Contractor’s Question: I currently live and work in France as staff at an international organisation and as an international civil servant, my salary is exempt from income tax in France. But I will soon leave to start a new job working for a company in the US.

However, until my visa is approved I will live and work in the UK as a remote contractor for this company, which will be a for a few months before moving to the US, hopefully in the autumn of 2021 assuming there are no problems with my visa and covid-19 travel restrictions.

As far as I can tell, this means I will be tax resident in three countries in a single tax year, which means it will all get messy, and potentially taxing too! I want my earnings while working as a contractor to be tax-efficient although I won't need all the income and am happy for it to be put into savings, such as a pension.

What should I do to ensure the above and be compliant? Plus, do I need three experts – one in France, one in the US and one in the UK who each understand the tax situation and can help with any issues in the following tax years?

I really cannot afford reputationally or otherwise to make any mistakes while working as a contractor and don’t wish to screw up my tax affairs in this and future years. Please advise!

Expert’s Answer: This is an interesting scenario and thank you for outlining it, but you do not say if you are currently a UK tax-resident or not. I am going to assume that you are a UK tax-resident as you implied this in your email form to ContractorUK.

Self-employed would trump 'Ltd'

In the period that you are working from the UK remotely for a client in the US, it would probably make no sense to form a limited company, as I presume you would need no longer once you had left for the US.

In this case, it would be more straightforward and equally if not more tax-efficient, to be self-employed. Being self-employed means that you will complete a UK self-assessment tax return at the end of the tax year and submit it to HMRC.

Where you won't necessarily need an accountant

If your affairs are not complicated, I see no reason why you should not do this yourself. If I have underestimated the complexity, then find a competent accountant or tax return specialist to help you with this. It should not cost you a lot of money nor take much time.

If you are looking for tax mitigation in the UK, investing in a personal pension scheme or tax-effective savings such as an ISA is something you could consider, pending research by you to see if an Individual Savings Account, or similar, would suit you. You can find information on ISAs on this UK government webpage.

Alarming complexity

Next, you say that you may be a tax resident in France, yet your salary in France is tax-exempt. So you will not need to submit a tax return in France unless you have other assessable income to French income tax. Should this be the case, then I would undoubtedly recommend that you do not do this work yourself as a French tax return is alarmingly complex, and you will likely come a cropper. It is not hard to find a local expert ‘comptable’ or ‘fiscaliste.’

Turning to your involvement with the US, I assume that you will be working there under an H1B with your client as the sponsor, which means that you will be the employee of your client, and they will be responsible for handling the tax and other deductions from your salary.

American obligations

In the US, you must file tax returns annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits. The form used to do this is a 1040. Again, I would heartily recommend that you find expert help. Many specialist firms assist with US tax returns.

Penultimately, if you leave the UK for an extended time (more than a tax year spanning April 5th till the following April 5th), you may become a non-UK tax resident. You therefore should complete form P85 and send it to HMRC. Form P85 notifies the tax authority that you are leaving the UK, may become non-tax-resident, and may trigger them not to request you to complete further UK returns of income.

Treble tax shouldn't trouble you

Finally, you will want to make sure that any income you have is not taxed more than once in France, the UK, or the US. The double tax treaties between these states prevent this happening and, where it does not, most countries will have provisions for giving relief for the tax that you have suffered already. I would think that unless your affairs are very complex or tangled, the specialists that I recommend you source ought to be able to help you. If not, or you would like a second opinion, please contact ContractorUK for my details or add me on LinkedIn. Let me wish you the best of luck with your exciting career moves!

The expert was chartered accountant Kevin Austin, managing director of overseas work advisory Access Financial.