A little tax question... : Thu Mar 01, 2012 12:47 pm  

So lets say that a person who is a UK taxpayer has been approached to sell a product of his online via a business based in Pennsylvania USA, the business will act purely as an agent and not employ the person direct but will deduct a commission for any sales made via their web site.

Payments will be collected by the American company and then forwarded to the individuals Paypal account at the end of the month, less only the commission with no deduction for local or federal sales or income tax, the individual will be treated as a self employed individual and its up to him to settle any tax due.

So, do I, erm, does he have to submit a tax return to the USA tax authorities or the UK Inland Revenue, or both ?

Re: A little tax question... : Thu Mar 01, 2012 1:16 pm  

Certainly to HMRC - you...erm, sorry he or she... will need to register as self employed and file a tax return.

As far as the US tax position is concerned, your "friend" should check it out with the US company they are going to be dealing with. If the sale contract for the product is going to be between the US company and the end customer who buys it off their website, I'd say it's their responsibility to account for state and federal taxes on the sale.

Your mythical friend isn't going to be resident in the US for tax purposes, neither do they have a business that's resident in the US. They're a UK business providing a product to a US customer, who is then selling it on their behalf.

Re: A little tax question... : Thu Mar 01, 2012 1:25 pm  

Andy Gilder wrote:

Certainly to HMRC - you...erm, sorry he or she... will need to register as self employed and file a tax return.

As far as the US tax position is concerned, your "friend" should check it out with the US company they are going to be dealing with. If the sale contract for the product is going to be between the US company and the end customer who buys it off their website, I'd say it's their responsibility to account for state and federal taxes on the sale.

Your mythical friend isn't going to be resident in the US for tax purposes, neither do they have a business that's resident in the US. They're a UK business providing a product to a US customer, who is then selling it on their behalf.

Hmm,

The first bit is sorted despite it going totally against everything my old man taught me

I've (I mean he) emailed the American company to ask their opinion/experience, I suspect they might not know because they only seem to act for US or Canadian citizens, the end client purchases direct from their web site and deals with them as a company on their terms and conditions, the payment goes to their bank account, but as a company they don't buy the product from me, I (oh bugger it, its me) hold it here until its sold, I ship it to the US direct to the end client and then I get paid 30 days later from the US company, less their commission and credit card fees.

Technically their "sale" is for the commission and I can't help but think that there is a large portion of the transaction that isn't going to be accounted for in their tax returns, the last thing I need right now is another tax demand from a different country, I've got my hands full with HMRC

Re: A little tax question... : Thu Mar 01, 2012 1:30 pm  

Take advice is the US.

Re: A little tax question... : Thu Mar 01, 2012 1:33 pm  

Set up the Paypal account in the name of your dog and claim it wasn't a bonus for Peter Crouch's sale if anyone asks, you'll be fine.

Re: A little tax question... : Thu Mar 01, 2012 1:35 pm  

Saddened! wrote:

Set up the Paypal account in the name of your dog and claim it wasn't a bonus for Peter Crouch's sale if anyone asks, you'll be fine.

This is the US we are talking about, not the UK. There is a robust extradition treaty.

Re: A little tax question... : Thu Mar 01, 2012 1:45 pm  

If you're worried about how they're going to account for the sale and whether they'll pay all the necessary taxes, are these people you genuinely trust to do business with?

Re: A little tax question... : Thu Mar 01, 2012 2:22 pm  

Andy Gilder wrote:

If you're worried about how they're going to account for the sale and whether they'll pay all the necessary taxes, are these people you genuinely trust to do business with?

Its not that really, its whether their part of the sale is just the commission, if I was running a business as an agent for other individuals or small businesses and my income was based on commission and not the product sale then I'd only account for those commissions for tax purposes.

I'm going to throw an HMRC employees head into a tailspin this afternoon and ask there

[DaveO]

Re: A little tax question... : Thu Mar 01, 2012 4:36 pm  

You need to be careful at the US end. The US tax authorities (IRS) are very ready and willing to consider income of a foreign national as liable for US taxes. http://www.irs.gov/businesses/small/international/article/0,,id=96459,00.html You will probably have to file a form to say whatever it is you supply was made here (assuming it is) and then you will be liable for UK income tax if you don't pay US taxes. Failure to file the correct form in the US can mean you end up with a US tax bill.

You need to be careful at the US end. The US tax authorities (IRS) are very ready and willing to consider income of a foreign national as liable for US taxes. http://www.irs.gov/businesses/small/international/article/0,,id=96459,00.html You will probably have to file a form to say whatever it is you supply was made here (assuming it is) and then you will be liable for UK income tax if you don't pay US taxes. Failure to file the correct form in the US can mean you end up with a US tax bill.

Re: A little tax question... : Thu Mar 01, 2012 4:57 pm  

It will probably all hinge on the precise terms of your "agency" arrangements and whether you are considered to have a branch / permanent establishment in the USA. From what you have said, probably unlikely but not impossible. If there was an issue you may in principle be taxable in both the USA and UK, in which event you would need to look at the tie break clause in the UK-US double tax treaty / apportion profits between the two jurisdictions. As has been said, come what may there may be bits of paper to fill in and penalties for not doing so - so local advise is sensible. Also, as I understand it, there are Federal and State issues....