Tax Advice For UK Companies Doing Business In The US

From registering your business in the US, to configuring a US specific business strategy, there are many aspects which need to be considered before navigating the US market. Throughout this article, Workwell Global discusses best practices and tips for UK businesses who want to enter the US market, as well as expert advice from Christy Woskobojnik an International Tax Manager, from Dyke Yaxley, on certain US tax requirements.

Why Are UK Companies Doing Business In The US?

The opportunities in the US are endless. With 50 different states to choose from, there is plenty of business to be done in the world’s largest economy. The UK companies which are listed on the FTSE 100 Index are making more money in the US than at home, sparking a business exodus to the land of opportunity.

UK companies often choose the US to establish their business internationally and reach a larger customer base. Proven by US BEA data, which highlighted that UK was the second largest investing country ($742.7 billion) in the US in 2024, with Japan taking the top spot ($754.1 billion), Canada in third (732.9 billion) and the Netherlands in fourth place ($726.4 billion).

Florida and Texas are two of the more popular locations for UK companies doing business in the US. With its favourable tax system, it’s no wonder so many UK businesses are choosing to do business here.

The UK and Texas share several industry strengths including information technology and manufacturing, making the UK among one of the top five countries for foreign direct investment projects in Texas. According to CNBC 2024 Report, Texas is ranked as the third-best state for business in ‘Americas Top States for Business’ table. Texas is a business-friendly state, offering businesses no corporate income tax, which is a major advantage for UK companies wanting to do business in the state.

If you decide to take the leap stateside, you won’t be the only UK company doing business in the US. You’ll be joining a host of UK companies, whose US expansion helped them scale to new heights and reach a global customer base. Some of the big companies include:

• Unilever – A multinational consumer goods company
• Diageo – A British multinational alcoholic beverage company
• ASOS – A British online fashion and beauty retailer
• Arm  – A British Microchip company
• Divido – A British fintech business, opened first NY office in 2019.
• WH Smith  – A global retailer specialising in news, books and convenience items

You can dig deeper into how the following foreign companies doing business in the US partnered with Workwell Global to get boots on the ground. Listen to InterEx Group’s story.

How to be the Next Successful UK Company to do Business in the US?

Taking your first steps when entering the US market can feel slightly daunting. Based on our experience, Workwell Global have provided some top tips on how to get started. The process can be made simple by following our step-by-step process, outlined below:

1. Conduct Market Research before doing business in the USA
2. Visit your chosen US State
3. Register Your Business in the US
4. Get Virtual US Company Address
5. Build a US Specific Marketing Strategy
6. Gather Marketing Material Targeting Your US Audience
7. Set up a Company Website or Landing Pages Tailored to the US
8. Take Out Business Insurance in the US
9. Finalise the finer details e.g. EIN Number, Taxes, Visas, Payroll etc…

For more information on the above steps our 6 Steps To Setting Up a Business in the US from the UK covers them in detail.

Tax Guidance for a UK Company Doing Business in the US

Now that we’ve covered common tips for UK companies doing business in the USA from afar, it’s time to hear from Christy a US Tax Expert at US-UK accountancy firm, Dyke Yaxley, to ensure you remain compliant in terms of taxes.

Are there Tax Requirements for a UK Company Doing Business in the US from their UK Office?

On the topic of tax requirements for UK companies doing business in the USA from afar, Christy said, “If all services related to the contract are performed outside of the US, you are simply trading with a US customer, and you do not have any federal requirements to worry about”

Example: UK Marketing Agency Completing Tasks for a US Client

Expanding on Christy’s advice for a UK company doing business in the US, let’s take the example of a UK marketing agency completing work for a US client.

If all work for the client is completed in the UK including website maintenance, social media graphics, and online advertisements, this is UK source income and the tax treaty between our countries ensures there cannot be double taxation. Your customer, though, may ask you to complete and IRS form W-8BEN-E.

Can companies doing business in the US from the UK without an Employer of Record?

One of Workwell Global top tips for UK companies doing business in the US is to work with expansion experts to ensure you remain compliant.

Overall, for any company doing business in the USA from the UK that need to employ locally, Christy emphasised the risks of creating a tax nexus if you pay US employees without the help of an employer of record:

“If you are a UK based entity you can pay people directly in the US but you’re going to have to get a US tax identification number. Which means you should file IRS form 1120-F protective filing annually. Additionally, you create a Nexus on a state level, which triggers additional filings. Each state in which a contractor is paid will have these requirements.”

It’s very important to know whether you trigger a permanent establishment if you are a UK company doing business in the US and hiring employees without an Employer of Record. As Christy explains:

“Your choice on whether to use an Employer of Record or not is based on how much time you are willing to spend on ensuring you remain compliant when recruiting in the US. It is also worth noting that employment law is very complex in the US and often differs from state to state.”

For example, many UK recruitment agencies doing business in the US choose to work with an employer of record to place and payroll their contractors as Christy explained in our interview:

“From my experience working with recruitment firms, many are not just recruiting into one state. Therefore, if this relates to your firm and you don’t want to pay more in accounting fees, legal fees, registration fees, and taxes, using an employer record is a very worthwhile and wise option for you.”

If you would prefer to not worry about everchanging compliance, and instead continue working on your business, rather than in your business, it is best practice to use an Employer Of Record like Workwell Global, who handles the compliance and employment aspects for you, so you can focus on what you do best.

How do UK companies invoice their clients in the US?

If you one of the many UK companies doing business in the US from afar, you need to get your invoices correct. When invoicing a US client for work you completed in the UK, you should consider:

• Tax considerations  – It is advised to seek advice from a US cross-border accountant to ensure you remain compliant.
• Payment methods – Have you got a US bank account, or receive a wire transfer?

• Exchange  rate risks – The costs to exchange and the impact on profits. Will you charge in GBP or US dollars? Your US client may ask you to complete a W-8 form. The purpose of the W-8BEN is for your client to ensure that they do not have to withhold federal tax from payments made to you.

Let’s take the example of a UK recruitment agency making contract placements in the US. The contract is considered signed in the UK and the team of recruitment consultants do all the work in the UK for the placement. If the agency is using Workwell Global as an employer of record to pay their contractors, the W8-BEN-E form quotes specific treaty language, and the recruitment agency can certify that they do not have a permanent establishment in the US.

Christy added:

“It should also be noted that you are not required to have a US federal tax identification number in order to complete the W-8-BEN-E form.”

We recorded a full interview with Christy on the W-8-BEN-E form which you can watch for further advice.

Further Taxation Trigger Considerations for a UK Company doing Business in the US

It is important to recognise that the ‘devil is in the details’ when it comes to US permanent establishment and taxation triggers. One example is around banking and payment receipt. Setting up an f/x account that allows you to accept payment in USD does not create a US establishment but setting up a traditional US bank account (which will require a US tax ID – EIN) will trigger taxation and compliance. It is also vital to remember that the states have requirements that are in addition to federal requirements.

Tax Guidance for a UK Recruitment Agency Doing Business In The US

Can a UK Recruitment Agency make permanent placements to the US?

As UK recruitment agencies are Workwell Global’s largest client type, we receive many queries on tax requirements when using our ‘US Recruit From Afar’ method. A common method utilised when agencies test the demand for their service by making permanent candidate placements with US clients when all the work is completed online.

We asked Christy from Dyke Yaxley for specific tax advice for UK recruitment agencies doing business in the US when it is permanent recruitment.

Christy’s response was:

“If you are recruitment firm based in the UK making permanent placements to the US, technically you are doing all the work in the UK. The contract is considered signed in the UK, and you are performing all services to find the placement from the UK.

Therefore, this is considered UK source income, you are just simply trading with a US customer. The tax treaty ensures no double-taxation, and unless you trip into certain activity you will not have taxation requirements in the US.”

Can a UK Recruitment Agency place contractors in the US from the UK?

Business legal/tax requirements can change for UK recruitment agencies placing contractors in the US vs permanent staff. If you make one-off permanent placements, all work in terms of sourcing and interviews for the US client can be done in the UK. You will receive your one-off fee for that work.

However, when you place US contractors, you pay them directly and regularly. If you pay any employee or subcontractor who is performing services in the US, you in most cases create a taxable presence in the US. As stated by Christy:

“Once you pay someone directly in the US that represents your business, you may create a taxable presence in the US.”

You can freely transact business with the US from the UK but there potentially could reporting/taxation requirements which you will be responsible for.

We always advise UK recruitment companies in the US doing contract recruitment to use an Employer of Record like Workwell Global to cover their contractor payroll in any state to ensure they remain compliant.

Why do Recruiters have taxation requirements when placing contractors in the US from the UK, but not when mkaing permanenet placements?

Christy said,

“The difference when placing a contractor in the US from the UK than permanent placements, is that you are paying them to perform services for you at your client’s worksite or remotely from their home within the US. This means you have triggered a physical and taxable presence, especially if you pay them directly.”

When making permanent placements the services are being performed outside of the US, and you are receiving a one-time fee. Contract placements are performing services within the US and require regular payments. If you engage with the contractor directly you will trigger a physical and taxable presence.

Christy further added, “In these situations, we often tell recruitment companies about Workwell Global, as an employer of record they remove the liability and risks involved with placing contractors in the US from UK recruitment companies.”

If a Recruitment Agency wants to make a permanent placement with a US clinet from the UK, how do they invoice them?

Invoicing US clients from the UK is straight forward, however there are a few aspects which need to be considered including currency, sales taxes, invoice date and date of payment. Christy has further advice on the best methods when working with UK recruitment agencies making permanent placements in the US.

When invoicing your US clients from the UK you must use the appropriate exchange rate when converting GBP to USD and follow the recommend HMRC requirements. Christy advice:

“Surprisingly, it is very straightforward to invoice a US client from the UK when making a permanent placement. The US does not have invoicing requirements like you have in the UK. You do not have to include a registered address or any taxation identifiers. You invoice in USD and supply an electronic payment method that allows for USD payments.“

Regarding VAT, Christy explains that:

“Initially, you will not have any sales tax requirements (VAT equivalent), but please note there are six states that have economic thresholds related to sales tax for recruitment firms that you should speak to your tax advisor about”

What happen if my US client doesn’t send me Form W-8 BEN?

If you are a UK company doing business in the US, knowing why and when you need to fill out a W-8BEN form is important.

“The purpose of the W-8BEN-E is for your client to ensure that they do not have to withhold US federal tax from payments made to you because the revenue is considered foreign based as outlined in the tax treaty.”

“The W-8BEN-E form is a federal form and will quote language from the tax treaty in Part III. Qualification to complete this form depends on not having a US permanent establishment, meaning you do not pay any agents to directly represent you who are working in the US nor having a US bank account.”

“If your US client does not send you the form, carry on as normal. It is your client’s responsibility to have the form on file to prove that they do not have to withhold any US income tax from the payments they make to you. If they don’t ask for it, you don’t have to supply it to them. The bigger the company you’re working with, the more likely you’re going to get sent this form.”

What are some of the mistakes UK companies make when doing business in the US?

For UK companies doing business in the US, aligning your marketing strategy to be US specific as well as your market research can help businesses gain a better understanding of their audience and establish a strong presence in the US.

Christy emphasised from her experience working with UK companies doing business in the US is understanding whether the transaction that you’re completing in the US is business to business or is to an individual is extremely important. As highlighted below:

“A common pitfall companies experience when engaging with contractors is relying on the US taxpayer to tell them that they’re a business entity. Simply having ‘LLC’ as part of their trading name does not mean that they are not acting as a sole proprietor which can cause many issues.”

“You may receive IRS form W-9 from them which informs you of their legal name, trading name, tax ID number (social security number or EIN) and most important how they are taxed. If taxed in any form other than S-Corp, C-Corp, Partnership or multi member LLC your engagement with a contractor will not be considered C2C.”

Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.