US Tax Services for American Expats on a UK Employer of Record

An American in the UK who works for a US company through a UK employer of record files in both countries: a UK return that captures everything PAYE missed, usually equity awards, and a US Form 1040 built from UK payslips because no Form W-2 exists. Each return must reconcile to the other.

That reconciliation is where returns for this group go wrong, and it is the reason senior remote hires look for US tax services for American expats that understand UK payroll as well as the Internal Revenue Code. At Jungle Tax we prepare both sides of the file for executives, founders and senior specialists engaged this way. This guide sets out what each return needs, where the records come from, and how to put matters right when share income was never reported in the UK.

What is an employer of record, and why does it change the tax return?

An employer of record (EOR) is a third-party company that becomes the legal employer of a worker in a country where the business they actually serve has no entity. The US company directs the day-to-day work and funds the cost. The UK EOR issues the employment contract, runs payroll and carries the employer obligations to HMRC.

For the individual, three consequences follow, and each one alters how a return is prepared:

• The employer for UK tax purposes is the EOR, not the US company. PAYE, Class 1 National Insurance, the P60, the P45 and any P11D all come from the EOR.
• The employer for US reporting purposes is a foreign company. No Form W-2 is issued, no federal income tax is withheld, and US Social Security and Medicare are not deducted.
• Equity usually sits outside the employment relationship. Restricted stock units and options are granted by the US company, which is not the employer. The party that knows the award has vested and the party that runs the payroll are different organisations.

The third point produces most of the errors we see. The first two produce most of the confusion.

The UK return: what the EOR handles and what it does not

PAYE and Class 1 National Insurance on salary

The EOR operates PAYE on salary, bonus and cash allowances in the ordinary way and deducts employee Class 1 National Insurance contributions. It also pays employer Class 1 contributions, the cost of which is recharged to the US company. From the individual's side, the salary element of the UK position is normally complete and correct by the time the tax year ends on 5 April.

The documents to retain are:

• every monthly payslip, which the US return will need in addition to the UK one;
• the P60 issued after 5 April, showing taxable pay and tax deducted for the UK tax year;
• a P45 if the engagement moved from one EOR to another, or from an EOR to a newly formed UK subsidiary, part-way through the year;
• a P11D, or payslip entries where benefits are payrolled, for employer-provided benefits such as private medical cover.

A change of EOR mid-year is common when the US company switches provider. It creates two employments in one UK tax year and two sets of year-to-date figures, both of which need to appear on a Self Assessment return and both of which feed the US wage figure.

Who withholds on RSUs and options granted by the US company?

This is the question competing guides rarely answer. Where shares acquired under an award are readily convertible assets, which listed US stock normally is, the employment income arising on vesting or exercise is within PAYE and Class 1 National Insurance. The obligation to operate that withholding sits with the employer, and for an EOR hire the employer is the EOR, even though it did not grant the award and may have no visibility of the vesting schedule.

HMRC's published guidance on registering and reporting employment-related securities states that where an employee is employed by an employer of record, the EOR remains responsible for submitting the required returns. The annual employment-related securities return is due by 6 July following the end of the tax year. The reporting framework is described further in HMRC's Employment Related Securities Manual at ERSM140070.

In practice the withholding depends on an information flow that often fails. The US company's stock administrator records a vest. Unless that data reaches the EOR's payroll in time, one of four things happens:

1. the vest is processed through UK payroll correctly, with tax and National Insurance funded by a sale of shares or a deduction from salary;
2. shares are sold at vest under the US plan's default and the proceeds are held or remitted to the US company, but nothing is reported through UK PAYE;
3. US federal withholding is applied at vest because the plan treats the participant as a US employee, and no UK withholding takes place at all;
4. nothing is withheld anywhere and the full number of shares is delivered to a US brokerage account.

Only the first outcome leaves the P60 complete. In the other three, the P60 understates UK employment income and the individual has an obligation to report the difference.

When does equity income have to go on Self Assessment?

If share income that should have been taxed through payroll was not, it still forms part of the individual's taxable employment income. It is reported on the employment pages of the Self Assessment return, in addition to the P60 figures, with a clear note in the additional information space explaining that the amount was not subject to PAYE. A person who is not already within Self Assessment must notify HMRC of chargeability by 5 October following the tax year, and the online return and payment are due by 31 January.

Three technical points matter when the figures are assembled:

• The taxable amount is the sterling market value at vesting for RSUs, or the spread between market value and exercise price for non-tax-advantaged options, converted at the rate on the date of the event.
• Dividend equivalents paid on unvested RSUs are generally treated as earnings rather than dividends.
• National Insurance cannot simply be settled through the personal return. Unpaid Class 1 contributions on share income are an employer payroll matter, so the EOR normally has to be involved in correcting the position.

There is also a timing trap. Where the employer accounts for PAYE on share income that the employee has not funded, and the employee does not make the amount good within 90 days of the end of the tax year, the unreimbursed tax can itself be treated as further employment income. With an EOR and a US stock administrator both involved, that deadline is easily missed.

Benefits and expenses

Benefits provided by the EOR appear on a P11D or through payroll. Benefits provided directly by the US company, such as a US-administered medical plan, a technology allowance paid in dollars or travel booked through the US company's systems, are still benefits by reason of the UK employment and are frequently omitted from UK reporting. The preparer needs a list of everything received from either company, not only what appears on the EOR's paperwork.

One contrast is worth noting in passing. An EOR arrangement differs from a direct payment arrangement, in which an overseas employer with no UK presence pays the employee gross and the employee personally operates a simplified PAYE scheme for tax and National Insurance; under an EOR the individual has no payroll duties of their own.

The US return: building Form 1040 without a Form W-2

How are wages reported when there is no W-2?

A UK EOR is a foreign employer. It has no obligation to issue a Form W-2, and the absence of one does not reduce the filing obligation. Wages are entered on the wages line of Form 1040 as foreign employer compensation, with the figure built from primary records.

The difficulty is that the UK and US tax years do not match. A P60 covers 6 April to 5 April. The US return covers 1 January to 31 December. The US wage figure therefore cannot be taken from a P60. It is assembled from twelve calendar-month payslips spanning two UK tax years, plus any equity income and benefits arising in the calendar year, whether or not they passed through UK payroll.

Amounts are converted to US dollars. The IRS accepts a yearly average rate for income received evenly through the year and expects the rate on the transaction date for discrete items such as a vest or an exercise; it publishes yearly average currency exchange rates for this purpose. Whichever method is used should be applied consistently from year to year.

Foreign earned income exclusion or foreign tax credit?

Two mechanisms relieve double taxation on UK employment income, and the return must use them correctly.

The foreign earned income exclusion, claimed on Form 2555, removes earned income up to an annual inflation-indexed ceiling from US taxable income. The ceiling is $130,000 for 2025 and $132,900 for 2026. The taxpayer must meet the bona fide residence test or the physical presence test, the latter requiring 330 full days outside the United States in a 12-month period.

The foreign tax credit, claimed on Form 1116, credits UK income tax against US tax on the same income. For senior earners whose compensation is well above the exclusion ceiling and taxed in the UK at higher and additional rates, UK tax on employment income usually exceeds the US tax on it, and unused credits carry forward for up to ten years.

From a preparation standpoint, the points that require care are these:

• The exclusion is an election. Once made it continues, and revoking it generally bars the taxpayer from re-electing for five years without IRS consent. A return should follow the method already in place unless a deliberate change is being made and documented.
• Foreign tax attributable to excluded income cannot also be credited. Where both are used, the UK tax must be apportioned.
• UK tax is paid on a 6 April to 5 April cycle. The Form 1116 must use either the paid or the accrued basis consistently, and the figures must be traceable to payslips and Self Assessment payments rather than estimated from the P60.
• UK National Insurance is a social security contribution. It is not a creditable income tax.

Is US Social Security due on EOR wages?

No, in the ordinary case. US Social Security and Medicare taxes apply to wages paid by an American employer, and a UK EOR is not one. Separately, the US-UK totalization agreement assigns coverage to the country where the employee works, so a locally employed American paying UK Class 1 National Insurance is covered by the UK system alone. The position differs for a short-term secondee who remains on US payroll under a certificate of coverage, which is not the EOR fact pattern.

The practical check for the return is that no FICA was deducted in error. If the US company processed an RSU vest through its own US payroll and withheld Social Security and Medicare, the correction is an employer refund claim, not an entry on the individual's return.

Does a former US state still have a claim?

Possibly. Several states continue to treat a former resident as domiciled there until a new permanent home is clearly established, and look at retained property, voter registration, driving licences and family ties. Where that is the case, a resident state return may still be required on worldwide income, most states do not recognise the federal foreign earned income exclusion, and credit for UK tax is often unavailable. Equity awards that began vesting while the individual lived and worked in the state can also carry a state-source element after departure. The state position should be confirmed for each year in the catch-up or filing period rather than assumed.

How is equity income sourced between the US and the UK?

Both countries allocate share income over the period in which it was earned, which is where EOR hires who relocated mid-vesting need particular attention.

For US purposes, compensation from RSUs is generally sourced by reference to where services were performed between grant and vest. Workdays in the UK produce foreign-source income, which supports a foreign tax credit. Workdays in the United States, including an earlier period of US employment with the same company before the move, produce US-source income on which a foreign tax credit is not ordinarily available.

The UK applies a comparable time-apportionment to awards held by internationally mobile employees. The portion of an award relating to a period of UK duties is taxable in the UK; the portion relating to an earlier period of non-UK residence and overseas duties is generally outside the UK charge. The two countries' calculations are similar in concept but do not always produce identical fractions, and the EOR's payroll will often tax the whole amount, or none of it, because it lacks the workday history. A correctly prepared pair of returns states the allocation once, on a documented workday basis, and applies it consistently in both countries.

Stock at a US broker: why the Form 1099-B is usually wrong

Shares delivered under a US company plan are normally held at a US brokerage, which issues a Form 1099-B when they are sold. For shares acquired through equity compensation, the cost basis reported to the IRS frequently excludes the amount already taxed as compensation at vest, and for RSUs it is sometimes shown as zero. For a US-based employee the compensation element is at least visible on the Form W-2. For an EOR hire there is no W-2, so nothing in the IRS's records links the two.

If the sale is entered as reported, the same value is taxed twice in the United States: once as wages and again as capital gain. The correction is made on Form 8949, adjusting basis to the fair market value at vest and supporting it with the plan's vest confirmations.

The UK side of the same sale is calculated differently:

• the UK base cost is the sterling value on which income tax was charged at vest;
• proceeds are converted to sterling at the sale date, so a dollar gain can be a sterling loss and the reverse;
• UK share identification follows the same-day rule, the 30-day rule and then the pooled average cost, whereas the US return typically uses specific lots or first-in, first-out.

The result is that one sale produces two different gains in two currencies in two tax years. Dividends on the retained shares must also be reported in both countries, with US tax withheld at source reflected correctly on the UK return. The US net investment income tax may apply to gains and dividends, and it is generally not reduced by foreign tax credits.

US and UK return requirements compared

Item	UK return (HMRC)	US return (IRS)
Tax year	6 April to 5 April	Calendar year
Employer for reporting	The EOR, as UK employer	The EOR, as a foreign employer
Year-end wage document	P60, P45, P11D	None; no Form W-2 is issued
Source for wage figure	P60 plus anything PAYE missed	Calendar-year payslips converted to dollars
Withholding on salary	PAYE and Class 1 National Insurance	None
Social security	UK National Insurance	Not due where the employer is foreign and UK coverage applies
RSU income	Employment income at vest; PAYE if operated, otherwise Self Assessment	Wages at vest, sourced by workdays from grant to vest
Share sale basis	Sterling value at vest; share pooling rules	Dollar value at vest; Form 1099-B basis adjusted on Form 8949
Double tax relief	Credit for US tax on US-source items where applicable	Form 2555 exclusion or Form 1116 credit
Main filing date	31 January after the tax year	15 April, with an automatic extension to 15 June for those abroad
Account reporting	Foreign income and gains pages	FBAR and Form 8938 for UK accounts above the thresholds

What else does the US return need for an EOR hire?

The salary is paid into a UK bank account, which brings foreign account reporting into scope. An FBAR is required where the aggregate maximum balance of non-US financial accounts exceeds $10,000 at any time in the year. Form 8938 applies to specified foreign financial assets above higher thresholds, which for a single taxpayer living abroad are $200,000 at year end or $300,000 at any time. A US brokerage account holding company stock is not a foreign account for either purpose, but UK current, savings and investment accounts are. Our FBAR penalty calculator illustrates the exposure where reports have been missed.

Does the EOR arrangement protect the US company from UK tax?

Not automatically, and it is useful context for the individual. Engaging staff through an EOR does not of itself prevent the US company from having a UK permanent establishment. Where a senior person in the UK habitually concludes contracts or plays the principal role leading to them, the question can arise regardless of who the legal employer is. That is a matter for the company and its own advisers. It is relevant to the individual's returns only because a later restructuring, such as a move from the EOR to a UK subsidiary, changes the employer, the payroll records and sometimes the treatment of unvested awards part-way through a year.

What if equity income was never reported in the UK?

This is the most common catch-up situation among EOR hires. Typically the individual reported the vesting income on a US return, because the US broker's records prompted it, and assumed the EOR's payroll had dealt with the UK. Several years later it emerges that the P60s contained salary only.

The work to correct it follows a defined sequence:

1. Establish the facts. Obtain the full transaction history from the stock plan, every P60 and payslip, and the workday record across each vesting period.
2. Quantify by UK tax year. Convert each vest or exercise to sterling at the date of the event and apply the workday allocation.
3. Correct open years. A Self Assessment return can generally be amended within 12 months of the 31 January filing date.
4. Disclose earlier years to HMRC. HMRC can ordinarily assess four years back, six where the loss of tax was careless and twenty where it was deliberate. A voluntary, complete disclosure made before HMRC opens an enquiry attracts materially lower penalties than a prompted one.
5. Address National Insurance with the EOR. Class 1 contributions are corrected through the employer's payroll records, not the personal return.
6. Revisit the US returns. UK tax now paid for earlier years changes the foreign tax credit position. Where the US returns relied on the exclusion or claimed no credit, amended returns may be required, and a foreign tax redetermination must be notified to the IRS.

Where the US side is also deficient, for example because the individual did not realise a return was required without a W-2, or omitted FBARs, the IRS Streamlined Foreign Offshore Procedures allow eligible non-willful taxpayers living abroad to file three years of returns and six years of FBARs with a signed certification, without the miscellaneous offshore penalty. The two disclosures should be prepared together so that the figures given to HMRC and the IRS agree.

A record checklist for both returns

• EOR employment contract and any side letter from the US company describing equity entitlement
• All payslips for the US calendar year and the UK tax year
• P60, P45 and P11D from each EOR in the period
• Stock plan grant agreements, vest and exercise confirmations, and sell-to-cover records
• Form 1099-B, Form 1099-DIV and year-end brokerage statements
• A workday calendar by country for each vesting period
• Any US payroll record showing federal, state or FICA withholding on awards
• Year-end and maximum balances for every UK account
• Prior-year US and UK returns, including the Form 2555 or Form 1116 history

How Jungle Tax prepares returns for EOR-engaged executives

Our work is return preparation and compliance. For clients engaged through an employer of record we prepare the US federal return, any required state return, the FBAR and Form 8938, and the UK Self Assessment return from a single reconciled set of figures. We rebuild calendar-year wages from payslips, reconcile equity income to the plan record, correct Form 1099-B basis, and document the workday allocation used in both countries. Where earlier years are incomplete, we prepare the HMRC disclosure and the IRS streamlined submission as one coordinated file. More detail on each side is available on our UK tax services and US-UK tax accountants pages, and our approach to complex files is described on our high net worth page.

If you are employed through a UK employer of record and are unsure whether your equity income, your foreign tax credit position or your earlier years have been reported correctly in both countries, contact our cross-border team to arrange a confidential consultation. We will review your payslips, plan records and prior returns and tell you precisely what each return requires.