Do I have to file Form 5471 if my UK limited company paid me no dividends?

Yes. The filing obligation depends on ownership, not on distributions. A US citizen who owns all the shares of a UK limited company controls a foreign corporation and is a US shareholder of a controlled foreign corporation, so Form 5471 is due with the Form 1040 every year, including years with no dividend, no salary or a loss. Tested income and subpart F income are also measured whether or not cash is paid out.

Which category boxes do I check on Form 5471 as the sole owner?

A sole owner meets the definitions of both Category 4, a US person with control of the foreign corporation, and Category 5a, a US shareholder of a controlled foreign corporation. The IRS instructions for Item B say that a filer who satisfies both checks only the Category 4 box and leaves Category 5a blank. The schedules required are still the combined set, which for a sole owner means all pages of the form and the separate schedules.

Is my consultancy fee income subpart F income?

It depends on the contract. Fees for work done in the UK for unrelated clients are usually outside foreign base company services income under section 954(e). However, section 954(c)(1)(H) treats fees as foreign personal holding company income where the contract designates the individual who will perform the services, or lets someone other than the company designate that individual, and that individual owns 25% or more of the company. A high-tax exception may then be available.

How does IR35 affect my US tax return?

IR35 is a UK rule with no US equivalent. Where a client applies the off-payroll working rules, the fee-payer deducts UK Income Tax and employee National Insurance before paying the company. For US purposes the company still reports the gross fee on Form 5471, the amount treated as employment income is compensation to the owner, and the UK income tax deducted can be claimed as a foreign tax credit. Keep the status determination statement and the fee-payer's deduction statements.

Can I credit UK corporation tax against my US tax?

Not directly. UK corporation tax is the company's liability, so an individual cannot claim it on Form 1116 as their own foreign tax. It becomes creditable through a section 962 election, which taxes subpart F and section 951A inclusions as if a domestic corporation had received them and allows a deemed-paid credit. It can also support a high-tax exception or exclusion, which removes the income from current US tax altogether.

What is the penalty for not filing Form 5471 for my UK company?

The IRS instructions state a 10,000 dollar penalty for each annual accounting period of each foreign corporation. If the failure continues after IRS notice, an additional 10,000 dollars is charged for each 30-day period after the 90 days following notice, up to a 50,000 dollar maximum additional penalty per failure. Foreign taxes available for credit are also reduced by 10%. Non-willful owners living in the UK commonly correct past years through the Streamlined Foreign Offshore Procedures.

Form 5471 for a UK Personal Service Company: US Rules

Form 5471 is required every year from a US citizen who owns all the shares of a UK personal service company, because sole ownership makes the company a controlled foreign corporation and the owner both a Category 4 and a Category 5 filer. The form is attached to the owner's Form 1040 and is due with it, extensions included. It is an information return, but its schedules drive real tax: subpart F income, tested income under section 951A, foreign tax credits and the record of profits already taxed in the US.

This guide is for the US-citizen consultant, contractor, interim executive or medical consultant who invoices through a one-person UK limited company. It also covers two situations most guides skip: a year in which the client applied the UK off-payroll working rules and paid fees net of PAYE, and the year the company is closed.

Why does a one-person UK limited company trigger Form 5471?

A UK private limited company is treated by default as a foreign corporation for US tax purposes. A controlled foreign corporation, or CFC, is a foreign corporation that is more than 50% owned by US shareholders, and a US shareholder is a US person who owns 10% or more of it directly, indirectly or constructively. One US citizen holding every share satisfies both tests alone. Living in the UK changes nothing, since the tests look at citizenship and ownership.

The Form 5471 instructions at https://www.irs.gov/instructions/i5471 sort filers into categories. A Category 4 filer is a US person who had control of a foreign corporation during its annual accounting period, with control meaning more than 50% of the voting power or value of the stock. A Category 5 filer is, in general, a US shareholder who owned stock in a CFC on the last day in the year on which it was a CFC, and Category 5a is the ordinary sub-category for a shareholder who is not within the special 5b or 5c cases. The sole owner of a personal service company is described in both Category 4 and Category 5a.

There is a box-checking point that is easy to get wrong. The specific instructions for Item B say that a filer who satisfies the requirements of both Category 4 and Category 5a checks only the box for Category 4 and leaves the box for Category 5a blank. The schedules required are still the combined set for both categories.

Which Form 5471 schedules does a one-person service company need?

The instructions state that a sole owner of a CFC completes all six pages of Form 5471 and the separate schedules. For a service company with one shareholder, one bank account and no group structure, most of those schedules are short, but they are not optional. The set we expect to see is as follows.

Page 1: identifying information, including the company's annual accounting period, which follows the UK year end and often does not match the US calendar year.
Schedules A and B: the share capital and the US shareholder.
Schedules C and F: the income statement and balance sheet, translated into US dollars under the rules in the instructions.
Schedules E and E-1: UK corporation tax paid or accrued. For an individual these matter mainly where a section 962 election is made.
Schedule G: the other information questions, which need real answers, not blanks.
Schedule H: current earnings and profits, starting from book profit and adjusting to US tax principles.
Schedules I and I-1: subpart F income and the section 951A tested income information. Worksheet A is where the service income tests are worked through.
Schedules J and P: accumulated and previously taxed earnings and profits, which decide whether a later dividend is taxed again in the US.
Schedule M: transactions between the company and its owner, including salary, dividends and the director's loan account.
Schedules Q and R: income by CFC income group, and distributions made in the year.

Two practical notes. A company that has genuinely stopped trading may qualify for the summary filing procedure for dormant foreign corporations in Rev. Proc. 92-70, under which the instructions say only page 1 is completed, but a company still holding retained cash should not be assumed to be dormant. And Form 5471 is not filed alone: tested income is carried to Form 8992, whose instructions are at https://www.irs.gov/instructions/i8992 on the IRS site.

Is the fee income of a UK personal service company subpart F income?

Subpart F income is a class of CFC income that a US shareholder must include in gross income in the year the company earns it, whether or not anything is distributed. For a service company, two heads need a documented answer each year: foreign base company services income, and the personal service contract rule within foreign personal holding company income. Many consultants pass the first and fail the second.

Foreign base company services income is defined in Internal Revenue Code section 954(e). It is income derived in connection with the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial or like services which are performed for or on behalf of any related person and are performed outside the country under whose laws the CFC is created or organised. Both conditions must be met. A related person, under section 954(d)(3), broadly means a person who controls the company, is controlled by it, or is under common control with it, with control set at more than 50%.

That is why UK-performed work for unrelated UK clients usually falls outside this head. A UK company whose owner works at a London bank, an NHS hospital or a UK technology business is performing services inside its country of organisation for customers it does not control and that do not control it. The risk cases are narrower and worth naming:

The owner also controls a US company or another non-UK entity that holds the client contract, and the UK company does the work for that related entity while the owner is physically outside the UK.
The client is unrelated, but the work is done outside the UK and a related person supplies assistance that is central to delivering it. The regulations under section 954(e) can treat that as services performed on behalf of a related person. Days worked outside the UK should be logged by contract for this reason.

What is the personal service contract rule in section 954(c)(1)(H)?

This is the rule a one-person company is most likely to meet. Section 954(c)(1)(H) brings into foreign personal holding company income amounts received under a contract under which the corporation is to furnish personal services if some person other than the corporation has the right to designate, by name or by description, the individual who is to perform the services, or if that individual is designated, by name or by description, in the contract. It also covers amounts received from the sale or other disposition of such a contract.

There is an ownership condition. The rule applies to a contract only if, at some time during the taxable year, 25% or more in value of the company's outstanding stock is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated to perform the services. A sole owner always meets it, so the question turns on the designation wording. The test is applied contract by contract and does not depend on where the work is done or whether the client is related. Worksheet A in the instructions gives it its own line, line 1h.

In practice the answer sits in the engagement documents. An agreement that names the consultant as the person who will deliver the services, a key person clause, or a client right to approve or select the individual all point towards the rule applying. A contract for a defined deliverable, under which the company decides who does the work and holds a genuine right to send a substitute, points away from it. These are the same clauses examined for UK off-payroll working purposes, so we read each contract once for both regimes and keep a note on file.

If the rule does apply, three provisions in section 954(b) shape the result. Under the de minimis rule, nothing is treated as foreign base company income if the total is less than the lesser of 5% of gross income or $1,000,000. Under the full inclusion rule, if the caught amount exceeds 70% of gross income, the entire gross income is treated as foreign base company income. Under the high-tax exception in section 954(b)(4), an item is excluded if the taxpayer establishes that it bore an effective rate of foreign income tax greater than 90% of the maximum US corporate rate in section 11. That rate is measured on US tax principles, so UK corporation tax is tested against US-computed income, not the UK accounts profit.

How do tested income, the section 962 election and the high-tax exclusion apply?

Fee income that is not subpart F income is generally tested income under section 951A. A US shareholder includes the net amount in income each year even if the company pays no dividend. The regime was known as global intangible low-taxed income, or GILTI. IRS material now refers to net CFC tested income: Notice 2025-72, at https://www.irs.gov/pub/irs-drop/n-25-72.pdf, explains that for taxable years beginning after 31 December 2025 the US shareholder includes its net CFC tested income under section 951A. The current Form 8992 instructions still carry the GILTI title, so both names will appear on working papers for some time.

For an individual owner the inclusion is, by default, taxed at ordinary individual rates with no credit for the UK corporation tax the company paid. Two elections address that. We set them out in outline only, because the right answer depends on each year's figures.

A section 962 election lets an individual US shareholder be taxed on subpart F and section 951A inclusions as if a domestic corporation had received them. That opens the corporate rate and a deemed-paid credit for the company's UK corporation tax, which is why Schedules E and E-1 must be right. The cost is that a later dividend out of those earnings is taxable to the extent it exceeds the US tax paid under the election. The election is made year by year.

The high-tax exclusion is a separate election under the section 951A regulations. It removes from tested income items that bear a sufficiently high effective rate of foreign tax, measured against the same benchmark of more than 90% of the top US corporate rate. A profitable UK company paying corporation tax in full will often clear it, but not always: US-only adjustments, UK reliefs or timing differences can pull the US-computed rate down. The test has to be run every year.

Salary or dividends: how do UK PAYE and corporation tax feed foreign tax credits?

Salary is the simplest. It is deductible to the company, which reduces both UK corporation tax and tested income, and it is wage income on Form 1040. The UK income tax collected under PAYE is the owner's own tax and can be claimed as a foreign tax credit on Form 1116 against the US tax on those wages, or the wages can instead be covered by the foreign earned income exclusion on Form 2555. The same salary cannot be relieved under both.

UK corporation tax is the company's tax, not the owner's. An individual cannot credit it on Form 1116 in the ordinary way. It becomes usable only through a section 962 election, or indirectly by supporting a high-tax exception or exclusion. This explains most of the unexpected US bills we see on personal service companies: retained profit, no election considered, and an inclusion taxed at individual rates with nothing to set against it.

Dividends carry UK income tax at the dividend rates, paid through Self Assessment. On the US side, a dividend paid out of earnings already included under subpart F or section 951A is a distribution of previously taxed earnings and profits and is not taxed again as a dividend, which is why Schedules J, P and R must be maintained from the first year. Because the UK tax year and the US calendar year differ, the UK dividend tax then has to be matched carefully to the right US year and credit category. Dividends from earnings not previously taxed are ordinary dividend income.

What happens in a year the client applied IR35 and paid fees net of PAYE?

The off-payroll working rules, known as IR35, apply where a worker who provides services through their own intermediary would have been an employee if they were providing those services directly to the client. HMRC's overview at https://www.gov.uk/guidance/understanding-off-payroll-working-ir35 explains that in most cases the client decides employment status, and that for a small client outside the public sector the worker's intermediary decides. The client must give a status determination statement with its reasons, and HMRC's status tool is described at https://www.gov.uk/guidance/check-employment-status-for-tax on GOV.UK.

Where a public sector or medium or large private sector client decides the rules apply, the deemed employer deducts Income Tax and employee National Insurance contributions from the fees and pays them to HMRC. The guidance for intermediaries at https://www.gov.uk/guidance/off-payroll-working-for-intermediaries-and-contractors-providing-services-to-the-public-sector-or-medium-and-large-clients-in-the-private-sector says the company can then pay the net amount to the worker as salary without deducting Income Tax or National Insurance again, or as dividends that do not need to be recorded on the worker's Self Assessment return.

Where the client is small and the company itself concludes the rules apply, the company calculates a deemed employment payment. The guidance at https://www.gov.uk/guidance/off-payroll-working-for-intermediaries-and-contractors-providing-services-to-small-clients-in-the-private-sector says it is reported on a Full Payment Submission on or before 5 April, is treated as the worker's employment income, and is deducted, with the employer National Insurance on it, in computing the company's taxable profits.

US law has no equivalent of IR35, so Form 5471 follows the legal form: the company contracted with the client, earned the fee and passed value to its owner. In the returns we prepare for such a year, Schedule C shows the gross fee as income and the amount treated as employment income as compensation, which takes tested income for that engagement close to nil. The owner reports the gross amount as wages and claims the UK income tax deducted by the fee-payer as a foreign tax credit. The failure mode we see most often is the opposite: the accounts show only the net cash received, the US return shows a dividend, and the UK tax deducted at source is never claimed. The UK treatment of the net payment does not carry across to the US return.

Worked illustration: an interim finance director with a one-person company

The figures below are an illustration only, and the UK corporation tax figure is an assumption made to show the mechanics. Laura is a US citizen living in Surrey who owns 100% of a UK limited company with a 31 March year end. The company invoices 240,000 pounds to two unrelated UK clients for work done entirely in the UK. It pays Laura a salary of 60,000 pounds, incurs 20,000 pounds of other costs, and has profit before tax of 160,000 pounds. Assume UK corporation tax of 38,000 pounds, dividends of 70,000 pounds and retained profit of 52,000 pounds.

Step one: Laura checks Category 4 only and completes the combined schedules. Step two: the services are performed in the UK for unrelated clients, so neither condition in section 954(e) is met. Step three is the personal service contract test. The first contract is for a defined project and gives the company a real right of substitution. The second, worth 90,000 pounds, names Laura as interim finance director and is within section 954(c)(1)(H). At 37.5% of gross income it is above the de minimis level and below the 70% full inclusion level, so only the net income from that contract is potentially subpart F income.

Step four is the rate test. On the assumed figures UK corporation tax is 23.75% of the accounts profit, but the comparison that counts is against income computed on US principles. If the effective rate is above the statutory benchmark, Laura can elect the subpart F high-tax exception for the caught contract and the high-tax exclusion for the remaining tested income, and report no inclusion. If a US adjustment pulls either below it, the alternative to model is a section 962 election. Step five is the personal return: salary as wages with PAYE claimed as a credit, and the dividend traced through Schedules J, P and R.

What about retained cash building up in the company?

Many consultants leave profit in the company to manage UK higher-rate tax on dividends. For US purposes retention defers nothing unless an exception or exclusion applies. Where the high-tax elections are used, the retained profit is not taxed currently in the US, but it does not become previously taxed earnings either, so a later dividend or liquidation is taxable on the US return. Where inclusions are taken, Schedule P carries the balance that can come out without further US tax.

Retained cash has side effects. Interest and investment returns on it are passive income tested separately from fees. A company holding mainly cash also raises the passive foreign investment company question, although the overlap rule for US shareholders of a CFC generally switches that regime off for the owner, a point covered in a separate article on this site. The company's accounts are reportable by the owner personally on the FBAR described at https://www.fincen.gov/report-foreign-bank-and-financial-accounts and, where the conditions are met, on Form 8938. An overdrawn director's loan account must appear on Schedules M and F.

What are the penalties for a missed Form 5471?

The penalty section of the instructions at https://www.irs.gov/instructions/i5471 is specific. A 10,000 dollar penalty is imposed for each annual accounting period of each foreign corporation for failure to furnish the required information on time. If the failure continues after the IRS sends notice, an additional 10,000 dollar penalty per foreign corporation is charged for each 30-day period, up to a maximum additional penalty of 50,000 dollars for each failure. Separately, the foreign taxes available for credit under sections 901 and 960 are reduced by 10%, with further reductions if the failure continues after notice.

Owners who have never filed, and whose failure was non-willful, most often come into compliance through the Streamlined Filing Compliance Procedures at https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures on the IRS site. The Streamlined Foreign Offshore Procedures, for those who meet the non-residency test, carry no penalty.

How is the company closed down when the owner moves to employment?

Interim executives regularly accept a permanent role and no longer need the company. GOV.UK sets out the options at https://www.gov.uk/closing-a-limited-company for a solvent company: striking off, or members' voluntary liquidation. Striking off is usually cheaper, but the guidance at https://www.gov.uk/strike-off-your-company-from-companies-register states that if the amount distributed is worth more than 25,000 pounds it is treated as income and Income Tax is payable on it. The underlying rule is in the Corporation Tax Act 2010 at https://www.legislation.gov.uk/ukpga/2010/4/chapter/3/crossheading/distributions-prior-to-dissolution-of-company on the legislation site.

The US analysis does not follow the UK label. A final distribution in liquidation is generally treated as a payment in exchange for the shares, giving a gain or loss measured in US dollars against the owner's basis. For a CFC, part or all of that gain can be recharacterised as dividend income to the extent of earnings and profits not already taxed in the US. Years in which the high-tax elections were made leave exactly such earnings behind, so the closure year is when the Schedule J and Schedule P history proves its value.

A Form 5471 is still required for the final, usually short, accounting period, and whether the disposal also brings in a Category 3 filing with Schedule O should be checked against the instructions. A pre-liquidation dividend and a liquidation distribution are taxed differently in both countries, so the sequence should be worked through on paper before a liquidator is appointed.

We prepare Form 5471, Form 8992, Form 1116 and the related Form 1040 schedules for US citizens with UK companies as a tax preparation and compliance service. This article is general information and is not a substitute for a review of the actual contracts and figures.