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working from home for US company....totally confused!

 
 
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daelaan
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PostPosted: Mon Jul 18, 2005 12:12 pm    Post subject: working from home for US company....totally confused! Reply with quote

hi Smile

heres the backstory - currently based in the UK, working full time for an english company.

had an amazing offer to work for a US company. all the work is done online (security based stuff, doing research, writing articles up etc, maintaining their DBs).

now they originally wanted me to go work there full time, but visas are an issue as they take so long to get. the alternative is to work remotely from home. you can probably see where this is going...

im already embroiled in "issues" with the inland revenue because of mistakes they made last year and the advice they have given so far on an unrelated subject has already made me fear ANY advice they might dispense, on the basis of it being 100% wrong.

so here are my questions....

1) ive checked the IR rules with regards to whether i would qualify as self employed or an employee. from what i can see, i fall under employee status. but because the money is coming from the US (at this stage i believe they would give it to me every month in stirling, so im not sure if its already been taxed in the US or not) there would be no automatic deduction of taxes / NI.

So wouldnt that effectively make me self employed?

but after looking at the self employed forms, they just dont apply to me.

"name of business"........"years in trading".........all that stuff. it just doesnt "fit" with "working from home for some american guys", if you see what i mean. im not running an actual self-owned business, with paint cans and vans, stock or anything else to worry about like expenses, business funds etc.

plus, i know the IR want receipts kept for everything, and if all my money is coming from working for someone else, it seems odd that i have to try and start up a "business" bank account and note how much i take from it with every transaction......because i see that you shouldnt mix your "personal" account with your "business" earnings lest you get into a muddle.

but if all the money is coming from a paycheck sent from a monthly employer, then the personal account would be empty anyway as all the cash is going into the other one!

in other words, do i need to start "declaring" (in the form of saving hundreds of recepits etc) every time i take money out of my monthly wage to do something as basic as buying £5 electricity for my home? is all my earnings from that point onwards classed as "business" earnings?

see what i mean? totally confused.

2) do i need to get additional home insurance in any way? again, everything ive seen revolves around "operating as a business from home". but its all slanted towards running your own business, not working for someone else from home.

3) do i need to open a business bank account? seems like theyre all geared towards someone "running their own business" too..

any help appreciated, its driving me up the wall!

the one thing i have to go off so far is that one of the american exec guys said i would be a "contractor" and not officially classed an an "employee" because their company is run through / by someone else.

they have one english guy working for them over here, i spoke to him *briefly* and he seems rather confused too. at present he has been advised by the IR to be down as self employed, but i still dont see the connection.
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trev
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PostPosted: Mon Jul 18, 2005 2:18 pm    Post subject: Re: working from home for US company....totally confused! Reply with quote

I should stress before I begin, non of this should be taken as absolute advice as I'm not a tax expert, but my mother is also technically self-employed in two part time jobs so I've seen the forms and seen what it does to people.

This advice is based on what she does, although it may be a little differerent as she doesn't work from home, but she's run into the same kinds of problems. There are some tax people around these forums so hopefully one of them should be able to embellish on this.


Quote:
im already embroiled in "issues" with the inland revenue because of mistakes they made last year


Welcome to the Inland Revenue - unfortunately it seems a lot of the people working there also have no clue how to do things outside what the forms say.


Quote:
So wouldnt that effectively make me self employed?


Going to the end of your message - if you're being classed as a contractor by the American company then you're almost certainly self-employed as far as both sides are concerned as they then don't have to work out the tax over their side. The thing is self-employed doesn't just mean people who run businesses, it's anyone who generates an income and isn't a PAYE employee effectively.


Quote:
but after looking at the self employed forms, they just dont apply to me.


Ah yes...the self-assessment forms! Amazing how they seem to have completely forgotten that probably more than half the self-employed population don't run an official business.

In her case the tax office told here there were two options.

1) Set yourself up under a company name, but thats more useful if you're going to bill the US company for your work and also allows easier claiming back of expenses related to the business, but your bank may make noises about having a business bank account (ie: "how much cash can we get out of you").

2) Just put n/a through the non-relevent bits which is what she does and send it back. All they really seem to be interested in are the figures at the end of the day, ie: another case of how much cash can we get out of you.


Quote:
plus, i know the IR want receipts kept for everything


Yeah, but that only really applies for things like business expenses. Now if you've got a good accountant you might be able to claim part of the heating & electric bill I'd guess assuming you have a designated office, but sorry, you can't claim for the burger & chips from Sainsburys (unless you have a really good accountant).

One thing I found when I tried to go self-employed however is if you're classified as running a business from an office at home, you can pottentially get stung for Business Council Tax and it may also be against the deeds of the property.

In your case I doubt there are too many receipts which would be required.


Quote:
and if all my money is coming from working for someone else, it seems odd that i have to try and start up a "business" bank account


There might be tax advantages in this (you'd need to speak to an accountant), but you don't usually need a business bank account - thats if you're wanting business cheque accounts and especially if you're VAT registered (which you won't be). Just make sure you've got all the statements from the bank and keep a very careful note of exactly how much they pay you as thats the important stuff.


Quote:
see what i mean? totally confused.


Welcome to the tax system!


Quote:
do i need to get additional home insurance in any way?


You might want to double check your policy in case it's got a home working clause, but I can't see any advantage otherwise. Only other thing you will need to check is that your computer etc. are fully covered.


Quote:
any help appreciated, its driving me up the wall!


I know - first time I ever heard my mother swear was when she read the tax form for the first time. Smile


If you want to be absolutely sure, you might be best speaking to a tax advisor or an accountant. The former tend to specialise in this kind of thing which although it might cost you a little to begin with, at least the advice usually comes with some guarantees and you can sue them if they are wrong (easier than suing the IR).

Trev
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daelaan
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PostPosted: Mon Jul 18, 2005 2:43 pm    Post subject: Re: working from home for US company....totally confused! Reply with quote

Trev wrote:
One thing I found when I tried to go self-employed however is if you're classified as running a business from an office at home, you can pottentially get stung for Business Council Tax and it may also be against the deeds of the property.


yeah, i heard about that - as far as me working from home goes, it would be done on the home pc in the living room. no office furniture or other stuff needed, no amendments or anything else done to the room to make it "fit for work" purposes, which i believe is one of the main issues with this. But i presume i'd have to make an appointment for someone to come out to my home to check this? or do they contact you themselves?
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PostPosted: Mon Jul 18, 2005 3:53 pm    Post subject: Re: working from home for US company....totally confused! Reply with quote

daelaan wrote:
no office furniture or other stuff needed, no amendments or anything else done to the room to make it "fit for work" purposes, which i believe is one of the main issues with this.


And the fact that they can extract more money from you to go and spend on another council "let's go visit our towns twin" type outing, or similar waste of money... Smile With the deeds, I think the main concern is if someone has say machinery going all day or delivery vans coming & going which doesn't affect you.


Quote:
But i presume i'd have to make an appointment for someone to come out to my home to check this? or do they contact you themselves?


Just don't tell them. You're not running a business from home so don't give them an excuse to try to land this on you with all the associated hassles of appeals and such. If they managed it, then the insurance might get a little worried (aka. good reason not to pay out) so it's best to let sleeping dogs lie.

Trev
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daelaan
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PostPosted: Mon Jul 18, 2005 3:58 pm    Post subject: Reply with quote

once again - thanks for the info. the only other thing that concerns me is how to make sure you save enough cash up out of your earnings to pay what tax is owed.

how do you go about doing this? is it something as basic as putting so much % away from each paypacket and if so, whats the best way to calculate how much you think you should save? is it better to overestimate?

sorry if these questions are pretty silly, just never had this kind of issue before!
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PostPosted: Mon Jul 18, 2005 4:29 pm    Post subject: Reply with quote

I've checked with Paul and we think the tax rates are basically the same as if you were paying it through PAYE. So you get something like the first £4000 tax free then you pay on the basis as shown on the Citizens Advice site

However even I'm confused by those figures they give, but I think thats after taxable income has been removed, ie: the 0 - 2000 is from about £4001 -> £6000 earned as you should get the first bit tax free.

I'd guess the best idea is to work out how much you'd be paying roughly in tax each week and put that much into a separate bank account (preferably earning interest). Then when you have to sort the self-assessment forms you shouldn't get too much of a shock and you might even find due to things like kids that you're actually paying less.

Inland Revenue will probably have booklets on all this kind of thing which tend to be a bit more reliable than some of the staff... Smile

Trev
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daelaan
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PostPosted: Mon Jul 18, 2005 6:18 pm    Post subject: Reply with quote

thanks Smile

you know what, you've helped put my mind at ease more than the previous 10(!) phonecalls and visits to the inland revenue. its greatly appreciated. what a great forum! i'll be sticking around Very Happy
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PostPosted: Wed Jul 20, 2005 1:18 am    Post subject: Reply with quote

Hi Trev

As requested here’s my twopence worth.

A UK resident is liable to UK income tax on his UK and overseas income so one way or another the Revenue will expect their pound of flesh. Despite appearances it’s difficult to see how they can class you as employed as the US company will not be subject to UK PAYE rules. Therefore the only way they’ll be able to get their tax is directly from you by treating you as self employed.

That being the case you should keep records of all your business related expenditure so that you can claim it back on your tax return. This should include an element of your accommodation costs.

Regarding the self employed forms; “name of business” will be your own name unless you are trading under another name. “Years in trading” will be the length of time you’ve been working for the US company. You don’t have to be a limited company to be self employed. As you point out the vast majority of self employed people run an unincorporated business.

Your tax liability as a self employed person will be about the same as if you were employed as you’ll be entitled to the same personal allowances. If anything your self employed tax will be less as the rules regarding claimable expenses are more generous for the self employed.

I would stress that this is a pragmatic answer rather than one based on written rules or procedures so it’s worthwhile confirming any course of action with the Revenue.

I wouldn’t bother opening a business bank account as the flow of funds through the account appears to be no different than that of someone receiving a monthly salary

Regards

Joy
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PostPosted: Wed Jul 20, 2005 6:36 pm    Post subject: Reply with quote

hey Daelaan,

My recommendation is to get yourself an accountant to advise you on all of this.

Your best bet (if you are going to be earning under £32k) is to go as a sole trader. All of your expenses can be written off against your income. It is simple to do and only requires you to declare yourself as being a sole trader.

If you do nothing and simply put it all through your personal bank accounts the whole amount of money will be liable for tax as income. Nasty!

The fact that it is an american company is largely irrelevant. You are going to have to sign a contract of some sort with that company. It is that contract that the tax man will be interested in.

As it is an American company you might want to look into professional liability & indemnity insurance. Who takes the 'can' if a you make a mistake and cause problems for one of their clients?

Also - who is bearing the exchange rate burden? If you set a rate in stirling and the rate drops - you become cheaper to them. If you decide on a Dollar rate you might lose out as the exchange rate fluctuates.

You might want to contact Dean a http://www.mmi-online.co.uk/ as he offers some free advice on tax issues. Very good bloke Smile

I know I have raised more questions than I have answered - but I have been where you are right now and in the end it was better for me to setup a limited company and put all the insurances in place to cover my ass Smile Your mileage may differ!

Hope this helps!

Andy
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PostPosted: Wed Jul 20, 2005 10:16 pm    Post subject: Reply with quote

buying_it wrote:

If you do nothing and simply put it all through your personal bank accounts the whole amount of money will be liable for tax as income. Nasty!


Not so! As a sole trader the requirement is that all income and expenditure in respect of the trade is separately identifiable. If this is your only source of income then only the amount in excess of your personal allowances will be subject to tax. Whether it goes through your personal account or a business account is irrelevant.

If you do chose to open a separate business account either open another account in your name and push all trade receipts and payments through that or search for a business account that offers free banking, eg the Abbey. Otherwise you're going to get landed with bank charges for what is akin to a monthly salary receipt.

Regards

Joy
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PostPosted: Thu Sep 29, 2005 9:09 am    Post subject: Reply with quote

Can I say a litle on the tax office, I have made several visits to mine in barnsley and all the staff have been very helpful, two of them even visited me for a day and helped me sort out where I was going wrong. I also work for several US companies and found getting my company registered was a bonus as it gives you a higher standing when you visit them, and for the low cost it does make sense as you can get cheaper car hire, hotel bills, all sorts of things as a company visiting the USA than as an individual.
Again I will say I have had a very good relationship with the TaxMan, try asking them for help it worked for me.
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