Going freelance in Britain when the IRS still counts you in

It is the simplest way to work for yourself in Britain. You and the business are the same legal person, so the profits are your income and the debts are your debts.

There is no company, no filing at Companies House and no separate corporation tax return. The GOV.UK guide to setting up as a sole trader covers registration.

Most freelancers start here. A limited company is a different structure with different consequences on both sides of the Atlantic.

You tell HMRC you are self-employed and register for Self Assessment. The deadline is 5 October after the end of the tax year in which you started, which catches people who begin mid-year.

HMRC then issues a Unique Taxpayer Reference. You use it for every return and payment afterwards.

Our guide to registering for Self Assessment covers the process and the penalties for leaving it late.

Registering also starts your National Insurance record as self-employed. That matters for the state pension, so it is worth doing promptly even in a quiet first year.

Class 4 contributions on your profits above the threshold, at the rates GOV.UK publishes for the year. They arrive with the income tax through Self Assessment rather than as a separate monthly bill.

Class 2 no longer works as it once did. Where profits reach the small profits threshold, HMRC treats Class 2 as paid, so your record stays intact without a payment.

Below that level you can pay voluntary Class 2 to protect your record. The GOV.UK page on self-employed National Insurance has the current rates and thresholds.

A Schedule C with your return, showing the income and expenses of the business. Living in Britain changes nothing about that requirement for a US citizen or green card holder.

Self-employment tax is the bigger surprise. The IRS states that the rules are generally the same whether you live in the United States or abroad.

It also confirms that the foreign earned income exclusion does not reduce it. The IRS page on self-employment tax for businesses abroad is explicit on that point.

One of them, not both, and a certificate settles which. Under the agreement between the two countries, a certificate of coverage from HMRC can confirm that your self-employment falls within the British system.

With that certificate, the IRS treats your self-employment income as exempt from US self-employment tax. Without it, you can face contributions on both sides of the Atlantic for the same work.

In our practice we see this single document save more money than any other step in going freelance in the UK. Apply for it early, because it takes time to arrive.

Britain taxes your profits through Self Assessment, in the ordinary way for a sole trader. America then taxes the same profits and relieves the overlap through the exclusion or foreign tax credits.

Credits usually suit freelancers better, because British tax on the same profit often exceeds the American charge. Our guide to choosing between the exclusion and the credit compares them.

Remember that relief applies to income tax, not to self-employment tax. That is why the certificate matters so much.

Both countries allow the costs of running the business, but the lists and the methods differ. Britain offers simplified flat rates for working from home and for vehicle mileage, which many freelancers use.

America has its own home office and mileage rules, with their own conditions and records. A claim that works on one return will not automatically transfer to the other.

Equipment is the clearest difference. Britain gives capital allowances, while America has its own depreciation and expensing rules, so the timing of relief rarely matches.

Keep one expense record and tag each item for both returns. Rebuilding a second set of accounts from bank statements in January is slow and error-prone.

It does once your combined self-employment and property income passes the threshold. From April 2026, sole traders and landlords above it must keep digital records and send HMRC quarterly updates.

The threshold steps down in later years, so freelancers below it now may join later. HMRC's guidance on when you need to use Making Tax Digital sets out the dates.

Quarterly updates are summaries rather than returns. You still file an annual return that pulls the year together.

HMRC has said it will not issue penalty points for late quarterly updates during the first year for those joining in April 2026. That grace period does not extend to the tax itself.

Enough to support two sets of figures, which is more than most freelancers start with. Britain wants income and expenses for the tax year to 5 April, while America wants the same business by calendar year.

Invoices, receipts, bank statements and a mileage log cover most of it. Keep them digitally if Making Tax Digital applies to you.

Record the currency of each invoice and the rate you used. Clients paying in dollars create conversion work on the British return.

Keep the records for as long as each country requires, which is not the same period. Storing them digitally makes the longer of the two easy to meet.

Only once you must, or when registering early helps your clients. Registration becomes compulsory above the turnover threshold that GOV.UK publishes each year, and it stays entirely voluntary below that level.

Freelancers with mainly business clients often register voluntarily, because those clients reclaim the VAT. Freelancers serving consumers usually do not.

VAT has no American equivalent, so it plays no part in your US return beyond the numbers it changes on invoices.

Set money aside from every invoice, because nobody deducts tax before the money reaches you. A separate savings account for tax is the simplest system that survives a busy year.

Britain also asks for payments on account towards next year's bill once your liability passes a small threshold. Our guide to payments on account explains why the first bill often feels doubled.

America expects quarterly estimated payments as well. So the year has two payment rhythms rather than one.

Aim to hold back a third of every invoice until you know your real rate. Adjust after the first full year, once you can see what the two systems actually cost you.

The client location does not change where you earn the income, which surprises people with American customers. Work you perform in Britain is British-source, whether the client sits in Leeds or Chicago.

Invoices in dollars need converting for the British return, using a consistent method you can explain. Keep the rate you used beside each invoice.

American clients may ask for a tax form to document your status. Give them what they need promptly, since it affects whether they withhold anything.

This order avoids the two most common problems: a late registration penalty and double social security.

Do the first three steps in your first month of trading.

Take an illustrative example: an American designer in Bristol leaves her job and goes freelance with clients in Britain and the United States. She registers with HMRC in her first month.

She applies for a certificate of coverage, so British National Insurance applies and US self-employment tax does not. She settles her income tax here, and credits remove most of the American charge.

Her first Self Assessment bill includes payments on account, which she had saved for. Her American return reports the same profits on a Schedule C for the calendar year.

Once a year, and whenever profits change sharply. Going freelance in the UK as a sole trader suits most people at the start, and the calculation can shift as the business grows.

A company becomes worth modelling at higher profits, though it carries American consequences a sole trade does not. Our guide to US compliant investing covers the wider principle of choosing structures both systems handle.

Review before the tax year ends rather than after. Some choices only work prospectively.

Bring an adviser in before you change anything. Undoing a structure costs far more than choosing the right one at the start.

The first is assuming the exclusion covers everything. It can remove income tax on your profits and still leave self-employment tax in full.

The second is skipping the certificate of coverage. Paying into two systems for the same work is expensive and slow to unwind.

The third is keeping one set of books on one country's calendar. The tax years differ, so the records need to support both.

The fourth is forgetting quarterly payments in America. Estimated tax runs on its own timetable, separate from the British one.

We set up freelancers on both sides through our UK Self Assessment service, including the certificate of coverage and the two sets of accounts. We prepare the American return alongside it so the figures agree.

If you are going freelance in the UK, send us your plans and we will map both systems at a fixed fee agreed first. This article is general information, not personal tax advice; take advice on your own facts from a qualified adviser.