Contractor Tax for US/UK Remote Work: Where Are You Actually Taxed?

Contractor tax for US/UK remote work follows two facts: where you physically do the work and where you are tax resident. Your client's location and the currency you invoice in matter far less. The country you live in normally taxes your profits, the US also taxes its citizens wherever they live, and social security is settled separately under the totalization agreement.

That is the short answer. The detail is where people come unstuck: a British freelancer who signs the wrong US form, an American in London who pays US self-employment tax and UK National Insurance on the same profits, or a contractor who assumes IR35 disappears because the client is in New York. This guide works through each layer in the order an adviser would.

Where is contractor tax paid for US/UK remote work?

Contractor income is taxed first by the country where you are resident, and US citizens and green card holders are also taxed by the US on worldwide income. Where the client is based does not decide it. Three questions settle almost every case: where you live, where you sit when you do the work, and whether you are a US person.

The US rule on source is explicit. The IRS says the place where the personal services are performed generally determines the source of the income, "regardless of where the contract was made, or the place of payment, or the residence of the payer" (IRS, source of income: personal service income). A day of work done at a desk in Manchester produces foreign-source income for US purposes, even if a Delaware company pays it into a US bank account. Where work is split between the two countries, income is apportioned by days worked in each.

On the UK side, a UK resident is taxed on worldwide income, and residence is decided by the Statutory Residence Test. A non-resident is taxed only on UK income. A contractor who moves mid-year may qualify for split year treatment, which divides the UK tax year into a resident and non-resident part.

What does the US/UK treaty say about contractor profits?

The treaty gives the country of residence the first right to tax a contractor's business profits. Article 7(1) of the 2001 US/UK treaty says the business profits of an enterprise of one country "shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein" (US/UK treaty text, US Treasury).

Unlike older US treaties, the US/UK treaty has no separate article for independent personal services. Self-employed professional work is treated as carrying on an enterprise and falls under Article 7, so the test is whether you have a permanent establishment in the other country. Article 5 defines that as "a fixed place of business through which the business of an enterprise is wholly or partly carried on", such as an office or branch.

For most remote contractors this is reassuring. A British consultant living in Bristol and billing a US client does not create a US permanent establishment just by having a US customer. A US-resident contractor who spends a few weeks working from a rented flat in London is a harder case, because regular use of a fixed place in the UK can start to look like one. Employees are different again: their salaries fall under Article 14, which has its own 183-day test.

There is one large exception. The treaty's saving clause lets the US tax its citizens and green card holders as if the treaty did not exist, apart from a list of preserved benefits. An American living in the UK therefore cannot use Article 7 to escape US tax. Instead, double tax is relieved through credits, as explained in our guide to the saving clause in the US/UK treaty.

Four common contractor scenarios

The table below shows where tax normally falls in the four situations we see most often. It assumes no permanent establishment in the other country and that the contractor works as a sole trader (a "sole proprietor" in US terms), not through a company.

Who you are	UK income tax	US income tax	Social security	Form for a US client
British citizen, UK resident, US clients	Yes, on worldwide profits	Normally none: work done in the UK is foreign-source	UK Class 4 NICs	W-8BEN
US citizen, UK resident, US or UK clients	Yes, on worldwide profits	Yes, on Form 1040, with a credit for UK tax	UK NICs; US SE tax removed with a certificate of coverage	W-9
US citizen, US resident, UK clients	Normally none without a UK permanent establishment	Yes, on worldwide profits	US self-employment tax	Not applicable
British citizen, moved to the US, still billing UK clients	Possibly in the move year; check split year treatment	Yes once US resident (green card or substantial presence)	US self-employment tax once US resident	W-9 once a US resident alien

The table is a starting point, not a filing position. Dual residence, a company in the middle, or regular working trips to the other country can each change the answer, which is why we look at contractor tax US UK remote work cases as a whole rather than one return at a time.

US self-employment tax vs UK Class 4 National Insurance

Income tax is only half the bill. Both countries also levy social security contributions on self-employed profits, and without planning they can both apply to the same money.

The US side: self-employment tax

US self-employment tax (often called SE tax, the self-employed version of the Social Security and Medicare taxes that employers withhold) is 12.4% for Social Security and 2.9% for Medicare, a combined 15.3% (IRS, self-employment tax). The Social Security part applies up to a wage base, which the Social Security Administration sets at $184,500 for 2026 (SSA, contribution and benefit base). The IRS confirms that the rules are "generally the same whether you are living in the United States or abroad" and that SE tax is due once net earnings reach $400 (IRS, self-employment tax for businesses abroad).

The UK side: Class 4 and Class 2

For tax year 2026/27, UK self-employed people pay Class 4 National Insurance at 6% on profits between £12,570 and £50,270 and 2% on profits above £50,270 (GOV.UK, self-employed National Insurance rates). Class 2 is no longer a compulsory payment: with profits of £7,105 or more for 2026/27 you are treated as having paid it, and below that you may choose to pay voluntary Class 2 at £3.65 a week to protect your State Pension record.

The totalization agreement decides which one you pay

The US/UK social security agreement (the US calls these "totalization agreements") removes the overlap. The Social Security Administration's manual states that the agreement "eliminates dual coverage of self-employment income by assigning coverage to the country in which the worker is a resident" (SSA POMS RS 02001.371). A UK-resident American pays UK National Insurance and should not pay US SE tax. A US-resident British contractor pays US SE tax and not UK Class 4.

The exemption is not automatic. The IRS tells you to "attach a photocopy of the certificate or statement to your Form 1040 each year you are exempt from U.S. self-employment tax". A UK-resident self-employed person applies to HMRC; the HMRC CA9107 guidance lists the USA and includes self-employed applicants. A US-resident contractor who needs to prove US coverage to HMRC applies to the Social Security Administration.

How to set up your position: a step-by-step order

The order matters because each step feeds the next. This is the sequence we follow for a new cross-border contractor.

1. Fix your residence. Apply the Statutory Residence Test for the UK and, if you are not a US citizen, the green card and substantial presence tests for the US. Check whether the year you moved is a split year.
2. Map where the work is done. Keep a simple day log of where you physically worked. It drives US sourcing, any apportionment and any permanent establishment risk.
3. Settle social security coverage. Work out which system covers you under the totalization agreement and apply for the certificate of coverage before the first return is filed.
4. Give clients the right form. Form W-9 if you are a US person; Form W-8BEN if you are not. Keep a copy.
5. Check your structure for IR35. If you work through a UK limited company, decide who makes the status call for each client.
6. Choose FEIE or foreign tax credits (US persons only) and plan US estimated tax and UK payments on account together.

W-8BEN or W-9: which form does a US client need?

A contractor who is not a US person gives the client Form W-8BEN; a US person gives Form W-9. The IRS says to give W-8BEN "to the withholding agent or payer if you are a foreign person" and the form goes to the client, not the IRS (IRS, about Form W-8BEN). Form W-9 provides a US taxpayer identification number to a payer that must file information returns (IRS, about Form W-9).

Two mistakes come up again and again. The first is an American in London signing a W-8BEN because they "live abroad". Citizenship, not address, makes you a US person, so the correct form is W-9. The second is a British contractor who has become a US resident alien, for example after getting a green card, and keeps sending out the old W-8BEN. Once you are a US tax resident, the form you sign has to change too.

Does IR35 apply when you work remotely for a US client?

IR35 can still apply, but the responsibility moves. The off-payroll working rules exist so that a contractor working through their own intermediary, usually a personal service company, "pays broadly the same Income Tax and National Insurance as an employee would" (GOV.UK, understanding off-payroll working). Since 6 April 2021, public sector bodies and medium or large private sector clients decide the contractor's status.

A client that is wholly overseas, meaning not UK resident and with no UK permanent establishment, does not have to apply those rules. HMRC's manual at ESM10006 is clear that the worker's intermediary must then consider the original Chapter 8 rules itself. In practice, a UK contractor billing a US company through a limited company still needs to assess each engagement and keep the reasoning on file. If the client has a UK branch, the overseas client takes on the status decision.

For a US citizen, a UK limited company brings extra US reporting, such as Form 5471 for a foreign corporation, so the choice between trading as a sole trader and using a company should be modelled on both sides first.

FEIE or foreign tax credit: which should a US contractor in the UK use?

Most US contractors in the UK are better served by the foreign tax credit, because UK income tax rates are usually at least as high as US rates. The foreign earned income exclusion (FEIE) is still worth modelling for lower earners or people with no UK tax on part of their income.

The FEIE lets a qualifying US person exclude foreign earned income on Form 2555, up to $132,900 per person for tax year 2026 (IRS, figuring the exclusion). You need a tax home abroad and must meet either the bona fide residence test or the physical presence test of 330 full days in 12 consecutive months (IRS, foreign earned income exclusion). For contractors, the key sentence is that the excluded amount "will reduce your regular income tax but will not reduce your self-employment tax".

The foreign tax credit, claimed on Form 1116, instead gives a dollar-for-dollar credit for UK income tax paid on the same income. Two limits matter. The credit only covers income taxes, and Publication 514 states that "no deduction or credit is allowed" for social security taxes paid to a country with which the US has a social security agreement (IRS Publication 514). UK Class 4 National Insurance is therefore not creditable; the certificate of coverage is the only way to avoid paying it and US SE tax together. Our guide to double taxation relief between the US and the UK covers the credit mechanics, baskets and carryovers.

Illustrative example: a US citizen designer lives in Manchester and is UK resident for 2026/27. She works as a sole trader for clients in the US and the UK, doing all the work from her UK home office, and makes profits of £60,000. Her UK Class 4 National Insurance at 2026/27 rates is 6% of £37,700 (£2,262) plus 2% of £9,730 (£194.60), a total of £2,456.60. Because she lives in the UK, the totalization agreement assigns her to UK National Insurance, so once she holds a certificate of coverage and attaches it to Form 1040, she owes no US SE tax. Her income is foreign-source because the work is done in the UK, so the UK income tax she pays can be credited against US tax on the same profits on Form 1116. She gives her US clients Form W-9, not W-8BEN, because she is a US citizen. Without the certificate she would face US SE tax as well as UK National Insurance, and neither credit would remove the overlap.

What people get wrong about cross-border contractor tax

• "My client is American, so it's US income." Source follows where the work is done. A UK-based non-American billing a US client usually has no US income tax to pay.
• "The FEIE wipes out my US bill." It never reduces SE tax. Without a certificate of coverage, a UK-resident American who claims the FEIE can still owe 15.3% on net earnings.
• "I can credit my National Insurance against US tax." Not under a totalization agreement. Coverage is settled by the certificate, not by the credit.
• "IR35 doesn't apply to foreign clients." The client-led rules may not apply, but the intermediary's own IR35 duty remains.

Getting both returns to agree

A contractor's UK Self Assessment and US Form 1040 have to tell the same story: the same profits, the same residence position, the same social security coverage and a credit that matches the UK tax actually paid. Our guide to UK Self Assessment for Americans explains how the two tax years line up. Americans settling in the UK can also read our overview of tax support for Americans in the UK, and treaty positions can be reviewed through our treaty relief service.

US/UK Cross Border Tax is US CPAs and UK tax advisers working as one team, with offices in London, Manchester, New York and San Francisco. If you are contracting across the Atlantic and want the residence, treaty, social security and form questions settled in one place, contact us to start with a review of how and where you work.