Running a Business in the UK as a U.S. Citizen: Rules, Taxes, and What You Need to Know

Why U.S. Citizens Choose the UK for Business

The UK is one of the most attractive places for U.S. entrepreneurs. With its stable legal system, access to European markets, and a thriving startup ecosystem—particularly in London—many Americans find it appealing to launch a business abroad.

But here’s the catch: as a U.S. citizen, your responsibilities don’t stop at the UK border. Owning foreign assets or business means you must deal with both UK rules and U.S. tax laws.

Starting a Company in the UK as a U.S. Citizen

Setting up a business in the UK is relatively straightforward. Many expats choose between two main structures:

1. Sole Trader (Self-Employed)

o Easiest way to start.

o You’re personally responsible for debts and liabilities.

o Income is taxed as personal income through HMRC Self-Assessment.

2. Limited Company

o A separate legal entity.

o Offers liability protection.

o Directors must file annual accounts and a corporate tax return with HMRC.

o More paperwork, but more professional credibility.

💡 Many Americans choose a Limited Company to separate personal and business finances.

UK Business Rules and Regulations You Should Know

Before launching your company, here are key regulations:

• Business Registration: Register with Companies House (for Limited Companies) or HMRC (for sole traders).

• Business Bank Account: Foreign owners can open UK accounts, but documentation requirements are strict.

• Licenses: Certain industries (finance, food, childcare) require additional permits.

• Employment Laws: UK employees are entitled to contracts, holiday pay, and pensions.

• VAT (Value-Added Tax): If turnover exceeds £90,000 (2025 threshold), you must register and charge VAT.

🚫 What not to do: Don’t mix personal and business accounts—it’s a red flag for both HMRC and the IRS.

The U.S. Side: Tax Filing for Americans Abroad

Here’s where things get tricky. As an American entrepreneur in the UK, you’re not just filing UK taxes—you’re also filing U.S. tax returns in the UK

Owning Foreign Assets or Business Triggers Extra IRS Rules

1. Annual U.S. Tax Return (Form 1040): Report worldwide income, including your UK business profits.

2. Form 5471: Required if you own at least 10% of a foreign corporation. Noncompliance = steep penalties (starting at $10,000 per year).

3. FBAR (Foreign Bank Account Report): If your UK business accounts exceed $10,000 at any time, you must file this.

4. GILTI Tax (Global Intangible Low-Taxed Income): If your company earns profits, they may be subject to additional U.S. taxation.

5. Foreign Tax Credit (FTC): Credits taxes you pay to HMRC to avoid double taxation.

⚠️ Even if your business is fully compliant in the UK, ignoring U.S. rules can lead to severe IRS penalties.

How to Manage Your Taxes as a U.S. Citizen Running a UK Business

Here’s a step-by-step approach:

Step 1: Track All Income and Expenses

Keep clean records of revenue, salaries, dividends, and expenses.

Step 2: File UK Taxes

• Corporate Tax (19%–25% depending on profit levels).

• Personal Income Tax on salaries or dividends you receive.

• VAT if your revenue requires registration.

Step 3: File U.S. Taxes

• Report UK income on your U.S. return.

• Use FTC or FEIE to reduce double taxation.

• File additional forms (5471, FBAR, FATCA).

Step 4: Hire a Cross-Border Tax Professional

Because of overlapping rules, most expats running businesses in the UK hire experts who specialize in both HMRC and IRS compliance.

What You Should Do and Shouldn’t Do as an Expat Entrepreneur

✅ Do:

• Separate business and personal finances.

• Keep accurate digital records.

• File both UK and U.S. taxes every year.

• Consider forming a Limited Company for liability protection.

• Consult experts before making big investment decisions.

❌ Don’t:

• Assume paying UK tax means you’re done (the IRS still requires your return).

• Forget about FBAR reporting for UK business accounts.

• Try to hide foreign income—the IRS has data-sharing agreements with HMRC.

• Wait until tax season to organize your records.

FAQs About Owning a UK Business as a U.S. Citizen

Q1: Do I pay taxes to both the IRS and HMRC?

Yes, but U.S. tax credits usually prevent double taxation.

Q2: Is running a UK business more complicated than in the U.S.?

It can be—especially due to reporting obligations. The UK system is simpler in some ways (like healthcare), but combining both adds complexity.

Q3: Do I have to file Form 5471 every year?

Yes, if you own at least 10% of a UK company. Failing to file can mean thousands in penalties.

Q4: What about passive income from my UK business?

Dividends or rental income must be reported on both your UK and U.S. returns.

Conclusion

Running a business in the UK as a U.S. citizen can be rewarding, but it requires careful planning. The UK offers opportunities, supportive infrastructure, and access to international markets. Yet, owning foreign assets or business means double the responsibility—both to HMRC and the IRS.

The key takeaway? Don’t just run your business—run it smartly. Stay compliant in both countries, keep organized records, and when in doubt, seek professional help. That way, you can focus on growth while avoiding tax pitfalls.