Starting a Business Across the Atlantic: A Founder's Tax Groundwork

Two launches, not one

A founder with feet in both countries is really launching twice: once into the system where the business operates, and once into the system that follows the founder personally. A US citizen building in Britain carries the IRS into every UK choice; a British founder opening a US arm acquires American filing obligations that do not care how small the venture is. The happy version of this story is boring — registrations done in order, structure chosen deliberately, no surprises at the first filing season. That is the version this page is for.

The registrations each side expects

Starting in the UK, the core sequence is short. Sole traders register for Self Assessment with HMRC (by 5 October after the first tax year of trading). A limited company is incorporated at Companies House and registered for corporation tax; a PAYE scheme comes before the first salary payment, and VAT registration becomes compulsory once taxable turnover passes the threshold (£90,000 on a rolling twelve-month basis) — earlier, voluntarily, where reclaiming input VAT helps.

Expanding to the US, the shape depends on how far in you go. A US entity needs formation in a chosen state and an employer identification number (EIN) from the IRS; hiring triggers federal and state payroll obligations; and US state taxes — income, franchise, sales — operate independently of the federal system and of the treaty. A UK company can also create US obligations without forming anything, if its people or agents establish enough presence there. The permanent-establishment question deserves an answer before the first US hire or office, because it is much harder to un-create than to avoid.

Entity choice: where founders lose money quietly

The structuring guide compares the vehicles properly; here are the launch-week pitfalls we see most:

• The reflex LLC. US founders reach for an LLC by habit. In UK-resident hands it is the classic mismatch vehicle — US pass-through, UK opaque — and often the single most expensive default a founder can take.
• The unexamined Ltd. UK incorporation is cheap and fast, and for a US-person owner it switches on Form 5471 reporting and potential current US tax on retained profits (CFC and GILTI). Fine if planned for; painful as a surprise.
• Geography beats paperwork. A company managed and controlled from the UK can be UK tax resident wherever it was formed — a Delaware C-corp run from a kitchen in Leeds has not escaped HMRC.
• Mixed founder teams. One American among the founders is enough to bring US reporting into a UK company's life. Shareholdings and share classes should be designed with that in mind, especially before investors arrive.

The common thread: entities are easy to create and taxable to unwind. Elections, conversions and transfers later are all possible — and all cost more than choosing well initially.

Paying yourself: payroll versus self-employment

How the founder gets paid is a decision with machinery attached. Salary means a PAYE scheme, real-time reporting to HMRC from the first payment, and employer National Insurance — but it is deductible for the company and, for a US-person founder, earned income that foreign tax credits and exclusions handle relatively well. Dividends avoid NIC but are not deductible, and their US treatment interacts with the company's US classification and any anti-deferral inclusions. Self-employment keeps things simplest of all, at the price of the self-employment tax and totalization questions that come with it.

For cross-border founders the remuneration mix is a two-country optimisation that shifts as profits grow. Set a deliberate policy at launch and revisit it annually rather than letting it emerge from whatever the bank transfers happened to be.

When pre-formation advice pays for itself

Not every venture needs advice before day one. A UK-resident Brit starting a UK-only sole trade can follow GOV.UK and do well. The profile changes when any of these are true: a founder is a US person; the business will operate, hire or hold assets in both countries; profits will be retained to grow; or investors are on the horizon. Each of those turns launch choices into cross-border commitments.

A couple of filing seasons later, the difference shows: books that produce both countries' filings without reconstruction, credits that land where they should, and a structure that still fits the business it was built for. That is the launch worth aiming at — and the work we do, for founders on either side of the Atlantic.