Is there a penalty under the Streamlined Foreign Offshore Procedures?

No. The IRS states that a taxpayer who is eligible and complies with all the instructions will not be subject to failure-to-file, failure-to-pay, accuracy-related, information return or FBAR penalties. The miscellaneous offshore penalty applies only to the separate domestic procedure for US residents. Tax and statutory interest for the three years must still be paid in full with the submission.

Do I need a Form 5471 for every UK limited company I own?

Yes, where you meet a filing category for that company. The IRS instructions require a separate Form 5471 for each foreign corporation, attached to your Form 1040. An owner with an operating company, a second site company and a property company would normally file three forms a year, so nine across a streamlined submission covering three tax years, including for dormant companies unless an exception applies.

Are my UK company's bank accounts reportable on my personal FBAR?

Usually, yes. Under 31 CFR 1010.350 a US person has a financial interest in accounts held by a corporation in which they own, directly or indirectly, more than 50 percent of the voting power or share value. Signature authority over a company account is also reportable. Trading, deposit, reserve and tips accounts all count towards the $10,000 aggregate threshold.

My UK accountant files everything with Companies House and HMRC. Is that not enough?

It satisfies the UK. GOV.UK confirms that directors are responsible for the annual accounts, the Company Tax Return and Corporation Tax. The United States separately taxes its citizens and green-card holders on worldwide income and requires its own returns, FBARs and Form 5471 filings. UK compliance is the starting material for the US package, but it does not replace any part of it.

Can I claim UK tax against my US tax on salary and dividends?

Generally, yes. The IRS allows a foreign tax credit, claimed on Form 1116, for foreign income taxes paid on income that is also subject to US tax, so UK income tax on a director's salary and dividends is normally creditable. VAT is not an income tax and does not qualify. No credit is available for tax on income you exclude from US gross income.

What if I own exactly half of a UK pub or restaurant company?

A 50% holding is not control under the Form 5471 instructions, which require more than 50% of voting power or value, so Category 4 does not apply on that holding alone. Other categories linked to being a director or acquiring 10% stakes may still require a filing in some years, and you will usually have signature authority over the company accounts for FBAR purposes.

Streamlined Foreign Offshore: UK Restaurant & Hotel Owners

The IRS Streamlined Foreign Offshore Procedure (SFOP) is the route a US citizen or green-card holder settled in the UK uses to bring years of unfiled US returns, FBARs and company information returns up to date without penalty, provided the failure was non-wilful. For the owner of a UK restaurant group, boutique hotel or pub company, the procedure is the same as for any other American abroad, but the package is far heavier: every UK limited company needs its own Form 5471 for each year, the business bank and tips accounts belong on the FBAR, and the owner's salary, dividends and share of company income all have to be rebuilt from UK accounts that were never drawn up with the IRS in mind.

What is the Streamlined Foreign Offshore procedure and who qualifies?

The Streamlined Foreign Offshore Procedures are an IRS compliance route for US taxpayers living outside the United States who failed to report income from foreign financial assets, pay the tax due, or file FBARs, where that failure was not wilful. The IRS sets the terms out at https://www.irs.gov/individuals/international-taxpayers/us-taxpayers-residing-outside-the-united-states and, according to that page, a taxpayer using the procedure must do the following.

File a delinquent or amended Form 1040 for each of the most recent 3 years for which the due date has passed, together with every required information return. The IRS names Forms 3520, 5471 and 8938 as examples, and says they must be included even if they would normally be filed separately.
File delinquent FBARs (FinCEN Form 114) for each of the most recent 6 years for which the FBAR due date has passed, electronically through FinCEN's BSA E-Filing System.
Complete and sign Form 14653, the Certification by U.S. Person Residing Outside of the U.S., confirming eligibility, that all required FBARs have now been filed, and that the failures resulted from non-wilful conduct.
Remit the full amount of tax and statutory interest due with the submission.
Write Streamlined Foreign Offshore in red at the top of the first page of each return and each information return, and send the package on paper to the dedicated IRS address. Electronic submission of the returns is not accepted.

In return, the IRS states that a taxpayer who complies fully will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties or FBAR penalties. That is the central point for a business owner. The foreign procedure carries no offshore penalty at all. The percentage-based miscellaneous offshore penalty that readers often see quoted belongs to the separate domestic procedure for US residents, not to this one. Tax and interest are still payable, and the IRS notes that penalties already assessed for those years will not be abated.

Non-wilful conduct is defined by the IRS as conduct due to negligence, inadvertence or mistake, or conduct that results from a good faith misunderstanding of the requirements of the law. The protection is conditional: penalties remain possible if a later examination finds the tax non-compliance was fraudulent or the FBAR violation was wilful, and a missing or deficient Form 14653 means the returns are processed in the normal way without the benefit of the procedure.

Does a UK hospitality owner pass the 330-day non-residency test?

For US citizens and green-card holders, the IRS non-residency requirement is met if, in any one or more of the most recent three years for which the return due date has passed, the individual did not have a US abode and was physically outside the United States for at least 330 full days. Where a married couple file jointly, both spouses must meet the requirement.

Most owner-operators pass comfortably, because a kitchen or a hotel does not run itself. The cases that need care are an owner who spent a long stretch in the United States during a family illness, or a hotelier who attends several US trade events and adds holidays either side. Days are counted, not estimated: we reconstruct travel from passport stamps, airline records and card statements, and only one qualifying year is needed. The IRS also notes that temporary presence in the United States, or keeping a dwelling there, does not by itself mean the abode is in the United States. Green-card holders are tested in the same way as citizens.

What does a restaurant or hotel business add to the SFOP package?

A salaried American in London typically submits three Forms 1040, six FBARs and a certification. An owner-operator submits all of that plus a layer of company reporting that most guides mention in a single line. None of it exists in the form the UK accountant already produces, which is why we start with the group structure chart. The hospitality business adds the following.

A separate Form 5471 for each UK limited company, for each of the three tax years, with its supporting schedules.
Company bank accounts, deposit accounts, tips or tronc accounts and any other reportable financial accounts on each of the six FBARs.
Director's salary, benefits and dividends on Form 1040, with UK income tax claimed as a foreign tax credit on Form 1116.
The owner's pro rata share of certain company income under the controlled foreign corporation rules, computed whether or not a dividend was paid.
Transactions between the owner and the company, such as director's loan movements and rent paid on a building the owner holds personally.
Form 8938 reporting of the shareholdings themselves, where the owner's specified foreign financial assets are within its scope.

Which Form 5471 category applies to each UK company?

Form 5471 is the information return a US person files for a foreign corporation in which they hold a qualifying interest or office. A UK private limited company is a foreign corporation for this purpose. The IRS instructions at https://www.irs.gov/instructions/i5471 require a separate Form 5471 for each foreign corporation, attached to the filer's income tax return and due with it.

The instructions sort filers into categories, and two of them matter for almost every hospitality owner. A Category 4 filer is a US person who had control of a foreign corporation during its annual accounting period, with control meaning ownership of more than 50% of the total combined voting power or more than 50% of the total value of all classes of stock. A Category 5 filer is a US shareholder of a controlled foreign corporation, where a US shareholder is a US person owning 10% or more of the vote or value, and a controlled foreign corporation is a foreign corporation whose US shareholders together own more than 50% of the vote or value on any day of its tax year.

A sole owner of a UK restaurant company is therefore within both Category 4 and Category 5a. The instructions say that a filer described in more than one category should not duplicate information, and that the sole owner of a controlled foreign corporation completes all the pages of Form 5471 together with separate Schedules E, G-1, H, H-1, I-1, J, M, P, Q and R. On the face of the form, a filer who meets both Category 4 and Category 5a checks only the Category 4 box.

Other positions arise once there are partners. A US owner holding exactly half of a pub company alongside a British partner does not control it, yet the Category 2 and Category 3 rules, which turn on being an officer or director and on acquiring or disposing of 10% holdings, may still require a filing in particular years. Control also passes down chains of more than 50% ownership, so a UK holding company does not remove the requirement. We test every company in the group separately, including dormant ones.

The stakes outside the procedure are published. The instructions state a penalty of $10,000 for each annual accounting period of each foreign corporation for failure to furnish the required information, with further amounts if the failure continues after IRS notice, and a reduction in creditable foreign taxes. Filing the forms inside a compliant SFOP submission is what takes those penalties off the table.

Which business, card-settlement and tronc accounts go on the FBAR?

The FBAR is a report to FinCEN, not a tax return. The IRS explains at https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar that a US person must file if they have a financial interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during the calendar year. The report is due on April 15 following the year reported, with an automatic extension to October 15.

The detail that catches business owners is in the regulation. Under 31 CFR 1010.350, published at https://www.law.cornell.edu/cfr/text/31/1010.350, a US person has a financial interest in an account held by a corporation in which that person owns, directly or indirectly, more than 50 percent of the voting power or share value. The company's accounts are therefore treated as the owner's own for FBAR purposes. Separately, signature or other authority means the authority of an individual, alone or with another, to control the disposition of funds in the account by direct communication with the institution holding it.

For a hospitality business that brings in more accounts than the owner expects. The main trading account and tax reserve accounts are obvious. Less obvious are the separate account many operators run for staff tips under a tronc arrangement, deposit accounts holding event prepayments at a hotel, a rent deposit account and accounts opened for a single site. If the company holds the account and the owner controls the company, the owner has a financial interest. If a tronc account is held by someone else, such as an independent troncmaster, but the owner can instruct the bank, signature authority still makes it reportable.

Card-settlement arrangements need a factual review rather than an assumption. Where a payment provider simply sweeps takings to the bank each day, there may be nothing separate to report. Where the provider maintains a balance in the company's name that the business can hold or draw on, we assess it against the regulation's definition of a bank account or other financial account. The IRS says records of each account's name, number, institution, type and maximum value must generally be kept for five years from the FBAR due date. Late FBARs in a streamlined case are filed through FinCEN's BSA E-Filing System with the late-filing explanation the IRS streamlined page specifies.

How are director salary and dividends reported on Form 1040?

A US citizen or green-card holder reports worldwide income on Form 1040, so the owner's director's salary, taxable benefits and dividends from each UK company are all reportable in US dollars for the calendar year. UK payslips and dividend vouchers follow the UK tax year and the company's own year end, so the first job is re-cutting them to January through December.

Double taxation is relieved mainly through the foreign tax credit. The IRS explains at https://www.irs.gov/individuals/international-taxpayers/foreign-tax-credit that a taxpayer who paid or accrued foreign income taxes on income also subject to US tax may take a credit, claimed by individuals on Form 1116, and that in most cases a credit is more advantageous than a deduction. Two points from that page shape every hospitality return we prepare. First, generally only income taxes qualify, which matters when we come to VAT. Second, a credit may not be claimed for foreign tax on income excluded from US gross income, so an owner cannot exclude salary under the foreign earned income exclusion and also credit the UK tax on it. Where company profit has already been included in the owner's US income, a later dividend of that profit is tracked on Schedules J and P of Form 5471 so that it is not taxed twice.

Is the company's undistributed profit taxed on the US owner?

It can be. A controlled foreign corporation is not taxed by the United States itself, but its US shareholders must include their pro rata share of certain categories of its income on their own returns, whether or not anything is distributed. Form 5471 carries the computation: Schedule I-1 deals with tested income, broadly the active trading profit of the restaurant or hotel, and Schedule Q splits the company's income into subpart F, tested and residual groups with the foreign taxes attached to each.

We describe this qualitatively on purpose. The US result depends on the company's income recomputed on US principles, the UK Corporation Tax it has paid, the fixed assets it uses, and whether elections available to individual shareholders are made. A freehold hotel with heavy tangible assets can produce a very different US outcome from a leasehold restaurant group with the same accounting profit. The figure cannot be known until each company has been run through the schedules for each of the three years.

Does it matter whether the hotel freehold is held by the company or personally?

Yes, and it changes which US forms carry the property. A freehold owned by the UK company sits on that company's balance sheet and is reported through Form 5471: it appears in the company's balance sheet schedule and its depreciation and any gain on disposal feed the company's income and earnings computations. The owner reports nothing about the building directly on Form 1040.

A freehold that the owner holds personally and lets to the operating company is a different position. The rent is the owner's own income, reported on Form 1040 with allowable expenses and US depreciation, and on the UK side through Self Assessment. The same rent is a related-party payment from the company's point of view and is disclosed on Schedule M of that company's Form 5471, the schedule the instructions reserve for Category 4 filers.

Leases are the common middle ground. Restaurant groups usually trade from leasehold premises, with the lease, fit-out and rent deposit held by the company. Those items stay at company level, although loans the owner has made to fund a fit-out are related-party items too.

Do UK VAT and PAYE affect the US returns?

VAT and PAYE are obligations of the company, not of the owner, and neither is filed again in the United States. They still feed the US figures. Turnover on Form 5471 is reported net of VAT in the same way as the UK accounts, and the VAT creditor at the year end is a balance sheet item. Because the IRS limits the foreign tax credit generally to income taxes, VAT is not a creditable tax for the owner or a tax in the company's foreign tax schedules. UK Corporation Tax, by contrast, is an income tax and is reported on Schedule E of Form 5471.

PAYE works at two levels. The company's payroll costs for kitchen, floor and housekeeping staff are ordinary expenses in its income statement. The income tax deducted from the owner's own director's salary is the owner's personal UK tax and belongs on Form 1116. Because the US calendar year straddles two UK tax years, we ask for payroll certificates for every overlapping year.

What records does the IRS package need from the UK accountant?

The UK accountant holds almost everything, but in a UK shape, and the package is where our tax preparation and compliance work with that accountant begins. Our standing request list covers the following.

A group structure chart showing every company, its shareholders and percentages, and the dates of any share issues, transfers or buy-outs.
Full statutory accounts and detailed management profit and loss accounts for each company, for every accounting period ending in the three US years, plus the opening balance sheet.
Corporation Tax computations and Company Tax Returns for the same periods, with evidence of tax paid and the dates of payment.
Fixed asset registers, including the cost and acquisition date of freehold property, fit-out and kitchen equipment.
Director's loan account ledgers and details of any rent, interest or management charges between the owner and each company.
Dividend vouchers and board minutes, and the owner's payroll certificates and benefit statements.
The owner's Self Assessment returns and tax calculations for each overlapping UK tax year.
A list of every bank and financial account held by each company and by the owner for six calendar years, with the highest balance in each year.
Share registers and incorporation documents, including for dormant or dissolved companies.

Worked scenario: one owner, two UK companies

The following is an illustration only. The figures are invented for the example and are not drawn from any client. A US citizen has lived in England for fifteen years and has never filed a US return. She owns 100% of a company operating three restaurants from leasehold sites, and 70% of a second company that owns and runs a freehold boutique hotel, with a British business partner holding the other 30%. She travels to the United States for about two weeks a year.

On eligibility, she has no US abode and is outside the United States for well over 330 full days in each of the last three years. Her UK accountant never raised US filing and she believed paying UK tax was the end of the matter; those facts, set out specifically on Form 14653, support a non-wilful certification.

On the companies, she controls both, so she is a Category 4 and Category 5a filer for each and checks Category 4. Her British partner is not a US person and has no US filing. The package therefore contains three Forms 1040 and six Forms 5471, two for each year. Her pro rata share of the hotel company's relevant income is 70%, and of the restaurant company's, 100%.

On the FBAR, assume for illustration that the restaurant company's main account peaked at 180,000 pounds, its tips account at 25,000 pounds, and the hotel company's trading and event deposit accounts at 240,000 pounds and 60,000 pounds. Because she owns more than 50% of both companies, every one of those accounts is reported on her FBAR in full, not at 70%, for each of the six years, alongside her personal accounts. At an assumed rate of 1.30 US dollars to the pound, used purely as an assumption, the company accounts alone exceed 650,000 dollars at their peak, far above the $10,000 threshold.

On her personal return, assume a director's salary of 60,000 pounds and dividends of 150,000 pounds in a year. Both are reported on Form 1040, with the UK income tax on each claimed on Form 1116. Whether further US tax arises from the companies' undistributed profits depends on the Schedule I-1 and Schedule Q computations. Any tax and interest are paid with the submission, and no penalties apply.

What does the UK side look like while the US package is prepared?

Nothing changes in the UK, and the UK filings are the foundation of the US ones. GOV.UK sets out at https://www.gov.uk/running-a-limited-company that a company's directors are responsible for keeping company records, preparing the annual accounts, completing the Company Tax Return, filing both and paying Corporation Tax, and that a director who hires an accountant for the day-to-day work remains legally responsible for the company's records, accounts and performance. The accounts filed at Companies House and the Corporation Tax return delivered to HMRC are the starting point for each Form 5471.

The owner's personal UK position runs through Self Assessment, where dividends and any rent received personally are reported. We compare those returns with the US figures line by line, and anything also missed in the UK is corrected with HMRC at the same time so that both sets of returns agree.

Where do hospitality owners' streamlined submissions go wrong?

The failure mode we see most often is a package built around the individual with the companies bolted on late. Typical faults are a Form 5471 missing for a dormant or newly incorporated site company, company accounts left off the FBAR because the owner thought of them as the business's money, a non-wilful statement written in generic language, and company figures lifted from UK accounts without recomputation. Each one weakens a submission whose protection depends on being complete. Where the facts point to conduct that was not non-wilful, the streamlined route is the wrong one and a different IRS disclosure process has to be considered before anything is filed.