Usually both countries' returns. A US citizen who lives in Britain and works remotely for a US employer files a Form 1040 (opens the official IRS page in a new tab) on worldwide income, and is normally UK resident under the Statutory Residence Test (opens the official HMRC page in a new tab), so the UK taxes the same salary. Whether that UK tax comes through PAYE or a Self Assessment return depends on whether the employer has a UK presence. Social security is paid to one country under the totalization agreement, and state tax turns on whether the old state still treats you as resident.
This post is for US citizens and green card holders who moved to the UK and kept a job with an American company, and for those hired by a US company to work from here. It goes deeper on one question than our guide to US and UK tax returns for Americans in the UK. It covers UK residence, PAYE and Self Assessment, US withholding on the pay, National Insurance and Social Security, the credit or the exclusion, and the state return.
Does the UK tax a US salary earned working from home in Britain
Yes, if you are UK resident. Residents normally pay UK tax on all their income, from the UK or abroad, and pay for work done at a desk in Britain is UK employment income wherever the employer is based and wherever the money lands. Residence is decided by the Statutory Residence Test, not by a simple day count.
HMRC's Statutory Residence Test (opens the official HMRC page in a new tab) applies the automatic overseas tests first, then the automatic UK tests, then the sufficient ties test. Spending enough days here, having your only home here, or working full-time here can each make someone resident automatically. A person who has moved to the UK to live and work from home will usually meet one of those tests. The first year deserves its own check, and our post on your first UK tax year as an American covers it.
The employer's location does not change the answer. A remote worker whose contract is with a company in Delaware, paid in dollars into a US bank account, still earns UK employment income for days worked in Bristol or Leeds. Non-residents also pay UK tax on UK income, but this post deals with people who have moved here.
Must a US employer run UK payroll for a remote employee
Only if it has a sufficient presence in the UK. HMRC treats PAYE as territorial and does not regard an overseas employer as having a UK tax presence simply because it has employees here. An employer without that presence can still choose to operate PAYE voluntarily on the salary.
Where there is a UK presence, such as a branch, a UK company or an address where HMRC can contact the employer, PAYE applies and the salary is taxed through a tax code like any UK job. HMRC's pages on PAYE for employers (opens the official GOV.UK page in a new tab) set out what registering involves. Where the employee works for a UK entity that is not the legal employer, the law can treat that entity as making the payments, and it then operates PAYE. Our payroll services cover both arrangements.
Where nobody operates PAYE, the UK tax is still due. The employee reports the salary on a Self Assessment (opens the official GOV.UK page in a new tab) return, using the employment pages of the SA100, registers by 5 October after the tax year ends, and pays by 31 January. Our UK Self Assessment service prepares these returns for Americans paid from abroad.
- Whether the company has a UK entity, branch or registered PAYE scheme
- Whether it will run UK payroll voluntarily for your salary
- Whether US federal income tax will still be withheld from your pay
- Which country's social security will be deducted, and on what evidence
- Whether state income tax is still being withheld for your old state
Why US federal tax may still come out of your pay
Because the US employer is still subject to US withholding rules. IRS guidance says US employers must generally withhold US income tax from the pay of US citizens working abroad, unless foreign law requires them to withhold foreign income tax. A remote worker in the UK can therefore see US tax taken from pay that the UK also taxes.
Publication 54 (opens the official IRS page in a new tab) gives one way out. An employer does not have to withhold US income tax from wages earned abroad if it is reasonable to believe the employee will exclude them under the foreign earned income exclusion or the foreign housing exclusion. The employee can support that with a statement, and Form 673 (opens the official IRS page in a new tab) is the IRS version. It is tied to the exclusion, so it suits only someone who expects to qualify and to claim it. Pay for days worked in the US should still be withheld on.
Withholding is a prepayment, not the final bill. The Form 1040 for the year works out the actual US tax after relief for UK tax, and anything withheld above that comes back as a refund. Where nothing is withheld and UK tax will not cover the US liability, estimated tax payments may be needed.
Which country's social security applies to a remote worker
Generally the UK's. Under the US-UK social security agreement, a person employed in one country is covered only by that country's system for that work. The main exception is an employee sent by an employer to work in the other country for a period not expected to exceed five years, who stays in the home system.
The point matters because US rules reach abroad. Publication 54 explains that Social Security and Medicare taxes generally do not apply to work done outside the US, with exceptions that include working for an American employer. Without the totalization agreement (opens the official SSA page in a new tab), a remote worker for a US company could face both US contributions and UK National Insurance on the same pay. The IRS page on totalization agreements (opens the official IRS page in a new tab) explains how the exemption is claimed.
Evidence is what makes the exemption work. Where the employee stays in the US system, Publication 54 says the employer should get a certificate of coverage from the Social Security Administration. Where the employee is covered by the UK only, the employee or employer should get a statement from the UK authority confirming UK coverage, and the employer keeps it. The detached worker rule is written for someone sent by the employer, so a worker who moved for personal reasons should not assume it applies.
- Employed in the UK and not seconded: UK National Insurance only, with a UK coverage statement
- Sent by a US employer for an expected period within the limit: US contributions only, with an SSA certificate
- No certificate or statement in place: risk of contributions in both countries on the same pay
- Self-employed contractor rather than employee: coverage follows where you ordinarily reside
Foreign tax credit or exclusion on a salary from a US company
Both are open, because pay for work done in the UK is foreign earned income even when a US company pays it into a US account. Publication 54 says the source of salary is the place where you perform the services. In the UK, where tax rates are generally higher than US rates, the foreign tax credit often gives the better result.
The foreign earned income exclusion (opens the official IRS page in a new tab), claimed on Form 2555, removes up to $130,000 of earnings for someone whose tax home is abroad and who meets the bona fide residence test or spends 330 full days abroad in a 12-month period. The exclusion and the credit cannot apply to the same income. Claiming the exclusion also rules out the refundable part of the child tax credit, and revoking it bars a fresh election for five years without IRS consent.
The foreign tax credit (opens the official IRS page in a new tab) on Form 1116 keeps the salary on the return and sets UK tax against the US tax on it, with unused credit carried over. For a remote worker the trap is days spent working on visits to the US. That slice of pay is US-source, so it falls outside the credit limit for foreign income. A log of workdays by country makes the split defensible. Our post comparing the foreign tax credit and the exclusion works through the choice.
Do you still owe state tax while working remotely from the UK
Possibly. State residence follows each state's own law. If the state you left still treats you as domiciled there, it can tax the whole salary, and states are not parties to the treaty. If residence has ended, the state usually taxes only income it treats as arising there, under its own sourcing rules.
Some states, notably California, New York, Virginia, South Carolina and New Mexico, are known for being slow to release former residents. A house kept available, a driving licence left in place and a move described as temporary all point to continuing domicile. The year of the move usually needs a part-year resident return, covered in our guide to US state tax returns and our post on leaving California or New York for London.
Payroll can keep withholding state tax simply because nobody changed the record. A remote worker who has given up residence should ask payroll to update the state position, and claim back any tax withheld in error on the state return. Many states give no credit for UK tax and some do not follow the exclusion, so a continuing state residence can cost more than the federal return. Our multi-state tax filing service prepares those returns.
How it fits together for a remote worker in Leeds
Take a US citizen who moved to Leeds with her British partner and kept her job with a US software company that has no UK office. She works from home full time, is paid in dollars, and her employer has carried on withholding US federal tax and tax for her old state.
In the UK she is resident under the Statutory Residence Test, and her whole salary is UK employment income. The employer has no UK presence and does not run PAYE voluntarily, so she registers for Self Assessment, reports the salary on the employment pages, and pays by 31 January. Her move was her own choice, so the detached worker rule is unlikely to fit and UK coverage is the likely result. How contributions are collected where the employer has no UK presence is a point to settle with HMRC early.
In the US she files Form 1040 with the salary as foreign-source wages, claims a foreign tax credit for the UK tax, and recovers federal tax withheld above her final liability. She files a part-year return to her old state for the year of the move and asks payroll to stop state withholding. If her UK accounts together pass $10,000 at any time, she also files an FBAR. Our individual tax returns service prepares both sides, and the guide for Americans in the UK sets out the yearly cycle.
General information, not advice. The right answer depends on your circumstances and the tax year concerned.
