Guide for a UK Company Doing Business in USA From Afar
So, you're interested in doing business in the US from the UK but not ready to commit to an office yet? Or perhaps the US work visa application process is holding you back from physically entering the market.
Did you know you can still do business in the US from the UK? This blog is full of PGC’s best practice tips from working with UK companies doing business in the USA. Followed by a part-transcribed conversation with Christina Woskobojnik, an International Tax Manager, from Dyke Yaxley, on your US tax requirements. Some of Christina’s US tax advice is specifically tailored to recruitment agencies.
Why be the Next Successful UK Company Doing Business in the US?
The opportunities in the US are endless, with 50 different states to choose from, there is plenty of business to be done in the world’s largest economy. So much so, that UK companies doing business in the US listed on the FTSE 100 Index are making more money in the US than at home, sparking a business exodus to the land of opportunity.
UK companies often choose the US to establish their business internationally and reach a larger customer base. Proven by US BEA data, which highlighted that UK was the second largest investing country in the US in 2022, with expenditures of $34.7 billion, slightly behind Canada.
Florida specifically is popular with UK companies doing business in the US. Over 600 UK companies are based in Florida, accounting for 70,000 jobs, making the UK the top foreign investor in Florida. In Texas, the UK also ranks first for ‘highest private-industry employment from foreign-owned firms’.
If you decide to take the leap stateside, you won’t be the only UK company doing business in the US. You’ll be joining a host of UK companies, whose US expansion helped them scale to new heights and reach a global customer base:
Unilever
Diageo
ASOS
Arm – A British Microchip company
Divido – A British fintech business, opened first NY office in 2019.
Eigen Technologies – Moved London HQ to New York as “American investors always ask “How big can you get?”, while UK ask, “What issues might you face?”
You can dig deeper into how the following foreign companies doing business in the US partnered with PGC to get boots on the ground:
DataCite – Non-profit within the research industry.
LawVu – SaaS platform for legal professionals.
SafeWaste – Trash cart lid securing system
Phaidon International – Global recruitment agency
InterEx Group – UK recruitment agency
PGC’s Tips for UK Companies Doing Business in USA
Now that we’ve covered why UK companies are doing business in the USA, you may be surprised to learn that it is very easy for you to do business in the US from any other foreign country.
You often don’t need to set up a US company to sell your services in the USA and when making deals with companies based there.
Here are some of our top tips on how to get started, before jumping into Christina’s specific tax advice for UK companies doing business in the USA.
1) Complete Market Research Before Doing Business in the USA
Before you pack your bags and cross the Atlantic, thorough market research is crucial. Start by identifying your target audience, competition, and trusted partners to help your US business expansion.
Working and seeking advice from the following US expansion experts will all help you compliantly do business in the US from the UK:
A cross border accountant
A US tax specialist
US immigration attorney
US business insurance provider
From PGC’s experience working with UK companies doing business in the USA, we always recommend starting small – in one state or city, with one niche service offering, backed by research that there is a demand for your services. The US is a huge place, so you must first understand the market nuances and tailor your offerings accordingly.
Market research is a big reason why companies do business in the US from the UK first before landing and expanding. This way you can build up solid first-hand research on if people are interested in your offering, key information about your client base, and experience on what it is like to operate in the US. This strategy not only decreases risks but helps aid business strategies and decisions.
Stuck on where to start when completing US market research? We’ve got a checklist that covers this!
2) Register Your Business in the US
Your options for establishing a presence in the US include forming a subsidiary or partnering with a local entity. Be careful on what business activities you complete in the US from the UK as some can trigger a permanent establishment.
Once you register your business, you must get an employee identification number and open a US bank account. Our 6 steps to open a business in the US blog goes into detail on these points.
3) Get a Virtual US Company Address
If you want to test out doing business in the US from the UK first, it’s often best to not commit to the costs of opening a US office without building traction first. You can start out by getting a virtual business address. You can then use this address on your website and marketing materials which helps build trust with your potential US customers.
4) Optimize Your Company Website, Sales & Marketing Materials for Your US Audience
UK companies doing business in the US often form a completely different marketing strategy from what works at home and per state in the US. Before you get started, tailor your messaging, branding, website, and social media presence to resonate with an American audience.
The video below explains how a CEO of a UK recruitment agency tailored their business development strategy in the US.
Once you’ve adapted your marketing and sales material to suit the US, it’s time to get selling. How do you do this?
Hire a US sales person to network and gauge demand for your offering before moving. Or your UK based sales and marketing staff could work US hours and leverage digital marketing and attend online network events, meetings and pitches to build your presence.
Top Tip: Don’t hire your first US employees out of your UK company
We often witness UK companies doing business in USA hiring salespeople in the country first before transferring staff. But it’s important to note that you should not hire US employees from your home entity. This can create three big headaches in the form of taxes, litigation risks to your UK company, and legal issues.
5) Make Sure Your Business Insurance Covers the US
If you’re thinking of doing business in the US, you’ve likely already established a strong presence in the UK. This means you have assets and a reputation to protect when branching into unknown markets.
A common mistakes companies doing business in the USA make is thinking that their UK business insurance covers claims in the US. However, most UK insurers will automatically exclude claims related to work carried out in the US under their standard terms.
So if you're working from your home office, enquire with your existing insurer to find out the terms and the cost for extending your business insurance policies to the US. Then, why not shop around with other insurers to determine the best coverage for your US business expansion.
It is also important to keep in mind that UK vs US contract law operates differently. It is recommended to update your UK business terms to honor US contract law before jumping into US deals. Luckily, we spoke to a US attorney on this matter to get you started.
6) Visit the US First Before Opening an Office & Don’t ‘Work’ Without a Visa
One of PGC’s top tips we share with UK companies doing business in the USA from afar is to take a trip first to discover which state is best for your business and lifestyle. But remember, you cannot work in the US without a visa proving your right to work.
UK business owners may be able to travel to the US on an ESTA to attend conferences, pitch for an investment or scope out the best state to live in. But a few days on your laptop answering emails in a café would be considered work of which a work visa would be required.
Our article talks more about the ESTA and types of US work visas you should be looking at to do business in the US. But as always, you should speak to a US immigration specialist to ensure you are entering the US legally.
Now that we’ve covered PGC’s top tips for UK companies doing business in the USA from afar, it’s time to hear from Christy, a US Tax Expert, to ensure you remain compliant.
Tax requirements if a UK company does business in the US from home
“If all services related to the contract are performed outside of the US, you are simply trading with a US customer and you do not have any federal requirements to worry about”
Dyke Yaxley - UK/US Accountancy Firm.
Example: UK Marketing Agency Completing Tasks for a US Client
Expanding on Christy’s advice for a UK company doing business in the US, let’s take the example of a UK marketing agency completing work for a US client.
If all work for the client is completed in the UK such as the US firm’s website maintenance, social media graphics, and online advertisements, this is UK source income and the tax treaty between our countries ensures there cannot be double taxation. Your customer, though, may ask you to complete and IRS form W-8BEN-E (Scroll down to learn more on this form!)
Can a recruitment agency based in the UK make permanent placements to the US?
We asked Christy from Dyke Yaxley for specific tax advice for UK recruitment agencies doing business in the US. Christina’s comments were:
“If you are a UK based recruitment firm making permanent placements to the US, technically you are doing all the work in the UK. The contract is considered signed in the UK, and you are performing all services to find the placement from the UK.
Therefore, this is considered UK source income, you are just simply trading with a US customer. The tax treaty ensures no double-taxation, and unless you trip into certain activity you will not have taxation requirements in the US.”
Can a UK recruitment agency place contractors in the US from the UK?
“Once you pay someone directly in the US that represents your business, you may create a taxable presence in the US."
Business legal/tax requirements can change for UK recruitment agencies placing contractors in the US vs permanent staff. If you make one-off permanent placements, all work in terms of sourcing and interviews for the US client can be done in the UK. You will receive your one-off fee for that work.
However, when you place US contractors, you pay them directly and regularly. If you pay any employee or subcontractor who is performing services in the US, you create a taxable presence in the US.
You can freely transact business with the US from the UK but there potentially could reporting/taxation requirements which you will be responsible for.
We always advise UK recruitment companies in the US doing contract recruitment to use an employer of record like PGC to cover their contractor payroll in any state to ensure they remain compliant.”
Dyke Yaxley - UK/US Accountancy Firm
Why do recruiters have taxation requirements when placing contractors in the US from the UK, but not when making permanent placements?
“The difference when placing a contractor in the US from the UK than permanent placements, is that you are paying them to perform services for you at your client’s worksite or remotely from their home within the US. This means you have triggered a physical and taxable presence, especially if you pay them directly.”
When making permanent placements the services are being performed outside of the US and you are receiving a one-time fee. Contract placements are performing services within the US, and require regular payments. If you engage with the contractor directly you will trigger a physical and taxable presence.In these situations, we often tell recruitment companies about PGC, as an employer of record they remove the liability and risks involved with placing contractors in the US from UK recruitment companies.”
Can companies do business in the US from the UK alone or do they need an employer of record?
As stated earlier, one of PGC’s top tips for UK companies doing business in the USA from afar is to work with expansion experts to ensure you remain compliant. That’s why we’ve asked Christy the main tax questions regarding US expansion before you get started.
Christy explains the risks and complications of creating a tax nexus if you pay US employees:
“If you are a UK based entity you can pay people directly in the US but you’re going to have to get a US tax identification number. Which means you should file IRS form 1120-F protective filing annually. Additionally, you create a Nexus on a state level, which triggers additional filings. Each state in which a contractor is paid will have these requirements.”
We expanded earlier on this point of knowing the importance of knowing whether you trigger a permanent establishment if you are a UK company doing business in the US.
Christy explains many UK recruitment agencies doing business in the US choose to work with an employer of record to place and payroll their contractors:
“From my experience working with recruitment firms, many are not just recruiting into one state.
Therefore, if this relates to your firm and you don't want to pay more in accounting fees, legal fees, registration fees, and taxes, using an employer record is a very worthwhile and wise option for you.”
We asked Christy, why it’s a good idea for a UK company doing business in USA to simplify the process by using an employer of record to get boots on the ground":
“Your choice is based on how much time you are willing to spend on ensuring you remain compliant when recruiting in the US. It is also worth noting that employment law is very complex in the US and often differs from state to state.
If you would prefer to not worry about everchanging compliance, and instead continue working on your business, rather than in your business, it is best practice to use an employer of record like PGC, who handles the compliance and employment aspects for you, so you can focus on what you do best.”
How does a UK company doing business in the US invoice their client?
When invoicing a US client for work you completed in the UK, you should consider:
Tax considerations – It is advised to seek advice from a US cross-border accountant to ensure you remain compliant.
Payment methods – Have you got a US bank account, or receive a wire transfer?
Exchange rate risks – The costs to exchange and the impact on profits. Will you charge in GBP or US dollars?
Your US client may ask you to complete a W-8 form. The purpose of the W-8BEN is for your client to ensure that they do not have to withhold federal tax from payments made to you.
In your case, the contract is considered signed in the UK and you and your team do all the work in the UK for the placement. Additionally you are using PGC as an employer of record to pay your contractors. The form quotes specific treaty language and you certify that you do not have a permanent establishment in the US.
“It should also be noted,” says Christy “that you are not required to have a US federal tax identification number in order to complete this form.”
We recorded a full interview with Christy on the W-8-BEN-E form which you can watch for further advice.
If a recruitment agency wants to make a permanent placement with a US client from the UK, how do they invoice them?
Following is Christy’s advice from working with UK recruitment agencies making permanent placements in the US.
Invoice in US dollars
“Surprisingly, it is very straightforward to invoice a US client from the UK when making a permanent placement.
There are no invoicing requirements like you have in the UK. You do not have to include a registered address nor any taxation identifiers. You invoice in USD and supply an electronic payment method that allows for USD payments.
Initially, you will not have any sales tax requirements (VAT equivalent), but please note there are six states that have economic thresholds related to sales tax for recruitment firms that you should speak to your tax advisor about”
US Tax form requirements
“The only thing you may be asked to complete by the client is Form W-8 BEN. This form certifies that you have completed all work in the UK, have complied under the tax treaty with the UK in the US, that your income is from a UK source.”
Who Needs to fill out Form W-8BEN-E? What happens if my US client doesn't send me Form W-8 BEN?
“If your US client does not send you the form, carry on as normal. It is your client’s responsibility to have the form on file to prove that they do not have to withhold any US income tax from the payments they make to you.
If they don't ask for it, you don't have to supply it to them. The bigger the company you're working with, the more likely you're going to get sent this form.”
Dyke Yaxley - UK/US Accountancy Firm
What are some of the mistakes UK companies make when doing business in the USA make?
“A common pitfall companies experience when engaging with contractors is relying on the US taxpayer to tell them that they're a business entity. Simply having ‘LLC’ as part of their trading name does not mean that they are not acting as a sole proprietor which can cause many issues.
You may receive IRS form W-9 from them which informs you of their legal name, trading name, tax ID number (social security number or EIN) and most important how they are taxed. If taxed in any form other than S-Corp, C-Corp, Partnership or multi member LLC your engagement with a contractor will not be considered C2C.
Dyke Yaxley - UK/US Accountancy Firm
Top tip when doing business in the US from the UK
Understand whether or not the transaction that you're completing in the US is business to business or is to an individual is extremely important.
Any other questions on how to do business in the US from the UK?
If you have any other specific tax-related questions on doing business in the US from the UK, reach out to Christy at Dyke Yaxley who is very happy to answer your questions in more detail!
If you want to learn more about using an employer of record to do business in the US from the UK, PGC have over 23 years experience helping UK companies make it in the US.
We offer 1-1 US expansion sessions, where you can learn top tips on how to start hiring employees in the US, popular states for business, UK vs US work culture difference and much more. Why not schedule your free 1-1 to get started in mapping out your US expansion plans?
Disclaimer: All information written here is for general informational purposes only and is not intended to be a substitute for professional and/or legal services.