US Expat Tax Return Remote Work From UK Explained |

US Expat Tax Return: Remote Work From UK Explained

US Expat Tax Return for Americans Working Remotely in the UK

Filing a US expat tax return is mandatory for every US citizen working remotely from the United Kingdom — even if your employer is American, your salary is paid in US dollars, and you have never set foot in an IRS office. US citizens are taxed on worldwide income regardless of where they live or work. Furthermore, working remotely from the UK while employed by a US company creates tax obligations in both countries. Your employer may be withholding US federal income tax from your salary, but you also owe UK income tax on income earned while you are UK-resident. Additionally, the interaction between US withholding, UK PAYE, and the foreign tax credit on Form 1116 determines how much you actually owe — and whether you are overpaying or underpaying. This article explains exactly what a US citizen working remotely from the UK must file, how the two tax systems interact, and the most common errors that create unnecessary tax bills.

Why UK Residence Creates US and UK Tax Obligations

UK Income Tax Applies From Day One of UK Residence

Once you become UK-resident under the Statutory Residence Test, HMRC taxes your worldwide employment income — including salary paid by a US employer into a US bank account. Furthermore, a US citizen working remotely in the UK for an American company is earning UK-source employment income because the services are performed on UK soil. Additionally, your US employer is not automatically registered with HMRC for PAYE. Consequently, you may need to register for UK self-assessment and pay UK income tax on your salary directly — even though your employer withholds US federal income tax from the same salary. The HMRC guidance on UK income tax for employees is at https://www.gov.uk/income-tax.

The US Tax Obligation Continues Regardless of Where You Work

US citizens must file Form 1040 and report all worldwide income every year — there is no exemption for living or working abroad. Furthermore, the US expat tax return for a UK-based American includes all UK employment income, UK interest, UK dividends, and any other income from any source worldwide. Additionally, the filing deadline for Americans abroad is automatically extended to 15 June, with a further extension to 15 October available on request. Consequently, most UK-based Americans have more time than US residents to prepare their returns — but the obligation to file is identical. The IRS guidance on filing for Americans abroad is at https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad.

How the Foreign Tax Credit Prevents Double Taxation

What the Foreign Tax Credit Does

The foreign tax credit on Form 1116 prevents you from paying full income tax in both the UK and the United States on the same salary. Furthermore, UK income tax paid — whether through PAYE or self-assessment — is creditable against the US income tax on the same income, reducing the US tax dollar-for-dollar. Additionally, because UK income tax rates are generally higher than the equivalent US rates at most income levels, the credit typically eliminates US income tax on UK employment income. Consequently, many UK-based Americans with straightforward employment income owe zero net US income tax after applying the foreign tax credit — they simply need to file the return correctly to claim it. The IRS Form 1116 guidance is at https://www.irs.gov/forms-pubs/about-form-1116.

When the Foreign Tax Credit Does Not Cover Everything

The foreign tax credit has limitations. Furthermore, it only offsets US tax on the same category of income in the same basket — employment income goes in the general income basket, and passive income, such as dividends, goes in the passive basket. Additionally, where your US employer also withholds US Social Security and Medicare taxes — FICA — those are not income taxes and cannot be offset by the UK foreign tax credit. Moreover, where you also receive US-source income — such as US bank interest, US dividends, or capital gains from US investments — the UK foreign tax credit does not apply to those amounts. Consequently, a US expat tax return covering both UK and US income sources requires careful basket-by-basket analysis to apply the credit correctly.

The Foreign Earned Income Exclusion: Use With Caution

The Foreign Earned Income Exclusion allows qualifying Americans abroad to exclude up to $126,500 of foreign-earned income from their US gross income in 2025. Furthermore, it sounds attractive — but using the FEIE can reduce the foreign tax credit available on the remaining income, and for most UK-based Americans with significant UK income tax, the foreign tax credit produces a better combined result than the FEIE. Additionally, claiming the FEIE requires meeting either the bona fide residence test or the physical presence test. Consequently, before choosing between the FEIE and the foreign tax credit, model both approaches for your specific income level and UK tax position. The IRS FEIE guidance is at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion.

FBAR and UK Salary Accounts

Your UK Bank Account Is FBAR-Reportable

Once you open a UK bank account to receive your salary or cover living expenses, that account is a foreign financial account for FBAR purposes. Furthermore, the FBAR must be filed for every calendar year in which your aggregate foreign account balances exceeded $10,000 at any point during the year. Additionally, the FBAR covers not just the UK salary account but every UK account— including current, savings, ISAs, and investment accounts. Consequently, most Americans who have been in the UK for even one full year have an annual FBAR obligation. The FBAR is filed through the FinCEN BSA E-Filing System at https://www.fincen.gov/financial-crimes-enforcement-network/fbar.

The FBAR Deadline and Penalty

The FBAR deadline is 15 April each year, with an automatic extension to 15 October. Furthermore, the non-wilful FBAR penalty for failure to file is up to $10,000 per account per year. Additionally, the IRS has been receiving FATCA data from UK banks since 2015 — meaning your UK accounts are already known to the IRS through the annual HMRC-IRS data exchange. Consequently, voluntarily filing the FBAR before the IRS contacts you is always the safer and less costly approach. The FBAR guidance is at https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar.

UK PAYE and the Self-Assessment Requirement

When Self-Assessment Is Required

If your US employer operates UK PAYE — having registered with HMRC as a non-resident employer — your UK income tax is deducted at source, and you may not need to file a UK self-assessment return. Furthermore, where your employer does not operate UK PAYE, you must register for UK self-assessment and pay the UK income tax yourself directly to HMRC. Additionally, the UK self-assessment deadline for online filing is 31 January following the end of the tax year on 5 April. Consequently, you may have simultaneous filing obligations in both countries — the UK self-assessment in January and the US Form 1040 in June. The HMRC self-assessment guidance is at https://www.gov.uk/self-assessment-tax-returns.

National Insurance Contributions

Working in the UK also creates a National Insurance contribution obligation — equivalent to Social Security tax in the US. Furthermore, where the US-UK Totalization Agreement applies, you pay NIC in the UK and are exempt from US self-employment or FICA taxes on the same income. Additionally, your employer — if US-based — may not automatically deduct UK NIC, meaning you may need to pay Class 1 or Class 4 NIC directly depending on your employment status. Consequently, confirming the NIC position with HMRC in the first year of UK remote work avoids a backdated NIC assessment. The HMRC NIC guidance is at https://www.gov.uk/national-insurance.

Case Study: American Working Remotely for a US Tech Company

Our team was engaged by a US citizen who had moved to the UK to be with her British partner and had continued working remotely for her San Francisco employer. She earned $110,000 per year in US dollars, deposited into her US bank account. Furthermore, her employer continued withholding US federal income tax and FICA from her salary. She had lived in the UK for two years without registering for UK self-assessment, without filing UK returns, and without filing FBARs for her UK current account.

After reviewing her position, we confirmed she owed UK income tax on her salary for both years — approximately £18,400 per year based on her income level after the personal allowance. Furthermore, we registered her for UK self-assessment, filed two years of UK returns, and arranged a payment plan with HMRC for the outstanding tax. Additionally, the US expat tax return for each year reported the same salary income as Form 1116 claiming the UK income tax as a foreign tax credit — eliminating the US tax on her employment income entirely. The FBAR for her UK current account — with a highest balance of approximately £14,000 — was filed for both years. The total UK tax due was approximately £36,800. The total additional US tax after the foreign tax credit was zero.

Common Mistakes Americans Make When Working Remotely in the UK

Assuming the US Employer Handles Everything

The most common mistake is assuming that because a US employer withholds US taxes, the UK tax obligation is somehow covered. Furthermore, US employer withholding satisfies the US federal income tax obligation but has no effect on the UK income tax due on the same salary. Additionally, many US employers are not registered with HMRC and have no mechanism to deduct UK PAYE. Consequently, the UK income tax falls entirely on the employee to declare and pay — and missing it results in HMRC interest and penalties on the unpaid amount. The correct approach is to confirm the UK PAYE position with the employer in the first month of UK remote work and register for self-assessment if PAYE is not being operated.

Not Filing the FBAR for the UK Salary Account

Opening a UK bank account to cover local expenses — rent, groceries, utilities — creates an immediate FBAR obligation once the balance exceeds $10,000. Furthermore, many remote workers open the account and never consider it a "foreign" account reportable to the IRS. Additionally, FATCA data means the IRS has likely already received information about the account from the UK bank. The correct approach is to include every UK account in the annual FBAR starting in the first year the aggregate balance exceeds $10,000.

Using the FEIE Instead of the Foreign Tax Credit

Choosing the FEIE without modeling the alternative often costs more in tax than it saves. Furthermore, the FEIE excludes income from US gross income — but also eliminates the foreign tax credit on the excluded amount. For UK-based Americans paying UK income tax at 20%, 40%, or 45%, the foreign tax credit provides full offset of the US tax — making the FEIE unnecessary and potentially counterproductive. The correct approach is to model both methods before electing the FEIE on the US expat tax return. The IRS FEIE guidance is at https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion.

How US-UK Tax Can Help

At US-UK Tax, our team of Enrolled Agents, Chartered Tax Advisers, and Certified Public Accountants prepares the US expat tax return and the UK self-assessment as a coordinated annual engagement for Americans working remotely in the UK. Furthermore, we register you for UK self-assessment where required, calculate the UK income tax correctly, prepare the US Form 1040 with Form 1116 to claim the foreign tax credit, file the FBAR for all UK accounts, and advise on the FEIE versus foreign tax credit decision for your specific income level. Additionally, we correct prior-year errors where UK tax was unpaid or the FBAR was not filed.

Contact our team today. Email hello@us-uktax.com, call 0333-8807974, or visit https://www.us-uktax.com/contact/.

Conclusion

Working remotely from the UK as a US citizen creates simultaneous tax obligations in both countries — UK income tax on your salary from day one of residence, and an annual US Form 1040 reporting the same income with the foreign tax credit applied. Furthermore, the correctly prepared US expat tax return eliminates double taxation through the foreign tax credit — but only where both the UK and US returns are prepared in coordination by advisers who understand both systems. Moreover, the FBAR for UK salary accounts is a separate annual obligation that must not be overlooked. Contact US-UK Tax at hello@us-uktax.com or call 0333-8807974 today.

Contact Us

US-UK Tax | hello@us-uktax.com | 0333-8807974

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FAQs

Q: Must I file a US tax return while working remotely in the UK?

A: Yes. US citizens must file Form 1040 and report all worldwide income every year, regardless of where they live or work. The filing deadline for Americans abroad is automatically extended to 15 June, with a further extension to 15 October available.

Q: Do I owe UK income tax on my US employer salary?

A: Yes. Once you are UK-resident, HMRC taxes employment income earned on UK soil — including salary paid by a US employer. Where your employer does not operate PAYE, you must register for UK self-assessment and pay the UK income tax yourself.

Q: Does the foreign tax credit eliminate US tax on UK employment income?

A: In most cases, yes. UK income tax paid on your salary is creditable on Form 1116, the general income basket. Since UK rates are generally higher than US rates, the credit typically eliminates the US income tax on UK employment income.

Q: Is the FEIE better than the foreign tax credit for UK workers?

A: Usually not. The FEIE removes income from US gross income but eliminates the credit on the excluded amount. For UK workers paying UK income tax at 20%–45%, the foreign tax credit produces a better combined outcome than the FEIE in most cases.

Q: Must I file an FBAR for my UK bank account?

A: Yes, where your aggregate foreign account balances exceeded $10,000 at any point during the calendar year. The FBAR is due 15 April with an automatic extension to 15 October. UK banks report account data to HMRC under FATCA for annual exchange with the IRS.

Q: What if my US employer has been withholding US tax but not UK tax?

A: You likely owe UK income tax that has not been deducted. Register for UK self-assessment, file UK returns, and pay the outstanding UK tax with interest. The UK tax paid then becomes a creditable foreign tax on your US return, eliminating the US liability on the same income.