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Expenses for abroad visit and self assessment

Expenses for US visit paid as lump sum (they didn't book tickets etc). Self assessment puzzle

Case:

  • UK citizen and tax resident gets invited to give presentation to US educational institution.
  • No fee charged, institution proposes to pay a fixed amount just enough to cover tickets, stay, food, instead of them doing bookings directly.
  • They say that tax has to be paid in the US and they keep 30%, indicating the money was for presentation.

What is the appropriate way to deal with this situation? HMRC suggested to:

  1. Declare gross earnings (prior to US tax reduction) and expenses in the self-employement section.
  2. Declare gross foreign earnings minus expenses in the foreign income taxable amount, and the tax paid in the US in the foreign tax section.
  3. Request foreign tax credit relief.
  4. After completing the self asssesment and with a Certificate of Residency provided by HMRC, apply to IRS to claim back the tax from the US based on the double taxation agreement.
  5. After tax is reimbursed by IRS, notify HMRC to make proper adjustments.

Are the above steps (particularly step 2) correct? For the foreign tax credit relief, do we input the entire amount taxed in the US? When trying to complete the foreign tax credit relief working sheet, in TC6 (income against which foreign tax credit relief is being claimed) do we specify the gross foreign earnings, or the gross foreign earnings minus expenses?

Thank you in advance for any help.

Replies

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By Matrix
12th Jan 2019 23:26

If you are claiming the tax back in full from the IRS then I don't see why it would go on the tax return or why it would be eligible for relief as a foreign tax credit.

I assume it is NRA withholding because you didn't provide a US tax form.

Which article in the double tax treaty were you looking at?

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By palex
to Matrix
12th Jan 2019 21:49

Article 14. The idea is that the amount is properly declared in the current self-assessment and if the tax is claimed back in full, HMRC is informed to make the proper adjustments. Not ideal, but that's what was suggested by them over the phone.

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By Matrix
to palex
12th Jan 2019 23:26

It doesn’t look like employment tax to me but NRA withholding. Maybe a US expert will be along to advise.

However if the tax is reclaimable then that would imply that the tax is in excess of the treaty rate and would not therefore be eligible for a tax credit. You can only get a tax credit up to the treaty rate.

I would not believe what HMRC tell you over the phone, I doubt the help desk has any training in foreign tax credits.

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13th Jan 2019 00:42

I can only echo what Matrix has said. HMRC helpline won’t have a clue. Find out the treaty rate. That is the maximum claim after determining chargeability to uk tax. Any excess must be claimed from IRS. If you are in doubt then consult an expert, especially if the sums are significant.

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13th Jan 2019 11:44

This sounds like an honorarium. From a US tax perspective, the only way to recover any of the tax withheld will be to both apply for an ITIN and to file a US individual non-resident tax return for the calendar year in which US tax was withheld. Should you want professional help with this, we have successfully prepared many hundreds of ITIN applications and US tax returns for clients in similar circumstances.

As there is almost certainly no US tax due under the Treaty, there is no credit claimable in the UK. As others have sensibly commented, it would be foolish to attempt to do so.

David Treitel | Managing Director | American Tax Returns Ltd
Enrolled Agent to the United States Internal Revenue Service
Accountant and Chartered Tax Adviser

The Old Exchange, 12 Compton Road, London, SW19 7QD

Tel: 020 3542 6330

Email: [email protected]

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By palex
13th Jan 2019 20:02

Thank you all for the replies. Just to be clear, the amount is very small, it's just a fact of being OK with one's obligations in reporting.

David:

What you suggest in relation to the US tax return is what others have suggested too. But in relation to HMRC, if I understand correctly you're proposing to not claim any Foreign Tax Credit relief and pay the full 40% tax on the actual earnings (gross minus expenses).

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14th Jan 2019 12:45

If you are not going to reclaim the US taxes paid, you can claim these as an expense in the UK tax return which would give you partial relief.

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