VAT and DIY, Employee share schemes, US tax returns

Last week we contemplated the hazards of completing tax forms incorrectly or late. We had a cautionary tale of mistakes when submitting a VAT claims under the DIY builder scheme, and a report of faults in HMRC’s processing of 2014/15 share scheme returns. We also had a final warning of the deadline for submitting USAtax returns – this applies to more people than you may realise.

US tax returns 
The USA has a citizen based taxation system, rather than a residence based system, which most other countries in the world operate. This means that all citizens of USA must complete a USA tax return every year, even if they have never lived in the USA. 
  
This obligation to file a USA tax return extends to non-USA citizens who are in possession of a valid “green card” which allows a person to work in the USA. The deadline for filing the 2014 tax returns for US-related individuals who live outside the US was 15 June 2015, although a four month extension could be requested on IRS form 4868. 
  
That extension is due to run out on 15 October 2015, which is also the last day on which an electronically filed personal tax return will be accepted by the IRS. Taxreturns submitted later must be filed on paper. Even if there is no tax liability in the US, a late filing penalty of up to $10,000 can apply. 
  
The USA tax return needs to report the individual’s worldwide income, not just income that arises within the USA. This requirement gives rise to a potential double tax charges on non-USA income and gains. However, due to the operation of double taxation agreements with USA, there may not be any further tax to pay for a UK resident, as tax rates in the UK are generally higher than in the USA. 
  
Having said that anyone completing a USA tax return must consider categories of income and gains which are tax free in the UK, but which are wholly or partially taxable under US law, such as:

  • sale of the taxpayer’s own home;
  • premium bond or lottery prizes; and
  • interest & gains generated within an ISA or pension fund.

Our US-tax experts can help you understand the USA tax compliance requirements for individuals, companies and trusts.
This is an
extract from our topical tax tips newsletter dated 1 October 2015
(5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the
other two topical, timely and commercial tax tips. We’ve been publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to know about each week.