Tax Return Foreign Income Question

pennypincher3562

I am just completing my online tax return and am a bit confused by the foreign income section. I received a smallish amount of income from the USA during the tax year (under £1000.) The company that paid me has a W8-BEN held under my name.

From my vague understand of taxes, the W8-BEN means that I don't pay tax on this income to the US government, and pay it to the UK government instead.

So the question that is confusing me is:

'You said that you received foreign income in the tax year 6 April 2017 to 5 April 2018. Please complete the following question(s).

Which of the following types of income or gain did you receive from overseas sources?'

I can't really find any suitable option to choose at this stage. The closest is:

'Employment, self-employment and other income which you paid foreign tax on (Optional)'

However in my opinion, I have no paid foreign tax to the US government due to the W8-BEN.

Any ideas what option I choose at this point? I also received a very small amount of money from Ireland.

Thanks.

masonic

The W8-BEN reduces the amount of withholding tax paid on foreign dividends, it does not eliminate it. I can't say how it impacts other types of income. Perhaps you could be more specific about what this income is? It's entirely possible to tick the box you've specified and then enter zero for the amount of tax paid.

pennypincher3562

masonic wrote: »

The W8-BEN reduces the amount of withholding tax paid on foreign dividends, it does not eliminate it. I can't say how it impacts other types of income. Perhaps you could be more specific about what this income is? It's entirely possible to tick the box you've specified and then enter zero for the amount of tax paid.

The income from the US is basically sales commission, so no dividends involved. I generated this income from the UK, and was not physically in the USA at the time.

Thanks.

masonic

pennypincher3562 wrote: »

The income from the US is basically sales commission, so no dividends involved. I generated this income from the UK, and was not physically in the USA at the time.

That would be treated as 'other income'. I agree it is unlikely to have been taxed. Best entered in the foreign income section if paid in USD from a company in the USA, but check the guidance notes on the other UK income section to see if it could be entered there together with the Irish income (if equivalent).

londoninvestor

The W8-BEN is probably not related to this income.

Many US companies have you sign a W8-BEN to reduce the dividend tax if you get shares through an employee share scheme - but it has no direct bearing on any US-taxable employment income you get from the company.

londoninvestor

Also, has the company given you a W2 form for the year? This is broadly the US's equivalent of a P60, i.e. it states the total income they paid you, and the tax withheld.

I'm not sure if it would work this way for a small amount of (possibly casual-based?) commission income.

pennypincher3562

londoninvestor wrote: »

The W8-BEN is probably not related to this income.

Many US companies have you sign a W8-BEN to reduce the dividend tax if you get shares through an employee share scheme - but it has no direct bearing on any US-taxable employment income you get from the company.

This is my understanding of filling out the W8-BEN (to avoid double taxation.) I have not see any W2 form in the mail.

'The United States levies withholding tax on all payments to foreign persons at a rate of 30% relating to U.S. source income.
Some countries with double tax treaties with the U.S. allow their residents to be taxed at lower rates (or none at all), depending on the treaty and type of income.
https://www.irs.gov/individuals/international-taxpayers/nra-withholding
Under Article 7 of the UK-USA DTA, your business profits are only taxable in the UK unless you have a US permanent establishment through which the business (of which services of an independent nature are included - e.g. contracting).
If you do not return the W8-BEN, the U.S. company will be required to withhold 30%'

masonic

pennypincher3562 wrote: »

This is my understanding of filling out the W8-BEN (to avoid double taxation.) I have not see any W2 form in the mail.

'The United States levies withholding tax on all payments to foreign persons at a rate of 30% relating to U.S. source income.
Some countries with double tax treaties with the U.S. allow their residents to be taxed at lower rates (or none at all), depending on the treaty and type of income.
https://www.irs.gov/individuals/international-taxpayers/nra-withholding
Under Article 7 of the UK-USA DTA, your business profits are only taxable in the UK unless you have a US permanent establishment through which the business (of which services of an independent nature are included - e.g. contracting).
If you do not return the W8-BEN, the U.S. company will be required to withhold 30%'

The W8-BEN reduces the withholding tax from 30% to 15%, the other 15% is can only be recovered by submitting a US tax return. However, I agree with londoninvestor that withholding tax would not normally be applied to this type of income.

londoninvestor

Sorry, I think you are right and the W8-BEN does indeed prevent withholding tax being taken from this income.

EDIT: I mean mitigate the withholding tax from 30% to 15%...

londoninvestor

masonic wrote: »

The W8-BEN reduces the withholding tax from 30% to 15%, the other 15% is can only be recovered by submitting a US tax return. However, I agree with londoninvestor that withholding tax would not normally be applied to this type of income.

Now I'm not sure!

https://www.irs.gov/pub/irs-pdf/iw8ben.pdf

This mentions a number of types of income, including "compensation for, or in expectation of, services performed".

I was initially getting confused with a scenario more personally familiar to me, i.e. income from work that was physically performed in the US and so is subject to US income taxes. I don't think a W8-BEN has any bearing in that case. But the OP is receiving payment from a US source for work that was physically done outside the US.

pennypincher3562

@LondonInvestor. Thanks for the replies. I am on the foreign income page of the self assessment, and presented with the following options. Any ideas which one I am meant to pick? The closest one would appear to be option 6, but I reckon I'm not eligible to pay tax to the US government due to the W8-BEN?

On the foreign income page, you are presented with the following options to choose from, and ideas why one is relevant in my case?

Which of the following types of income or gain did you receive from overseas sources?

1) Interest and other income from overseas savings (Optional)
2) Dividends from foreign companies (Optional)
3) Overseas pensions, social security benefits and royalties etc (Optional)
4) Dividend income received by a person abroad (Optional)
5) All other income received by a person abroad and any remitted 'ring fenced' foreign income (Optional)
6) Employment, self-employment and other income which you paid foreign tax on (Optional)
7) Capital gains (Optional)
8) Any other overseas income and gains (Optional)
9) Income from land and property abroad (Optional)