Self-Employed American in the UK: Tax on Both Sides

Self-employed American in the UK: an introduction

As a self-employed American in the UK, you file a UK Self Assessment return and a US return each year, but you should pay social security tax in only one country. The US-UK totalization agreement assigns your self-employment to the UK if you live here. Income tax is then relieved through the foreign tax credit or the foreign earned income exclusion.

This article explains each layer of tax and how the two returns fit together. For the wider picture of filing in both countries, read our guide to US and UK tax returns. It covers residence, credits and timing for every type of income.

Why being a self-employed American in the UK is different

An employee's tax is mostly handled through payroll on both sides. In contrast, a self-employed person works out profit, pays their own tax and files the returns. Furthermore, the US taxes its citizens on worldwide income wherever they live. Consequently, you report the same business profit to HMRC and to the IRS, under different rules and in different currencies.

What US tax does a self-employed American in the UK pay?

The US charges two taxes on self-employment profit: income tax and self-employment tax. Self-employment tax is the US social security and Medicare charge on people who work for themselves.

Self-employment tax and the $400 rule

The IRS page on self-employment tax sets the rate at 15.3%. That is 12.4% for social security and 2.9% for Medicare, as section 1401 of the tax code provides. You generally owe it once net earnings from self-employment reach $400. Schedule C is the form for business profit, and Schedule SE is the form that works out the tax.

The rules apply abroad too

The IRS page on self-employment tax for businesses abroad says the rules are generally the same whether you live in the US or abroad. Therefore, moving to the UK does not by itself end US self-employment tax. Only the totalization agreement, covered below, does that for UK residents.

The foreign earned income exclusion does not help

The foreign earned income exclusion lets you leave qualifying foreign earnings out of US income tax. However, the Schedule SE instructions say that foreign self-employment earnings cannot be reduced by the exclusion when you work out self-employment tax. In our experience, this surprises many people who assumed the exclusion covered everything.

Business expenses on both returns

Both countries let you deduct costs incurred for the business, but the detailed rules differ. For example, home office costs, cars and equipment can be treated differently. Therefore, a self-employed American in the UK should keep receipts in a way that supports both returns. The profit figures will rarely match exactly, and that is normal.

How does the US-UK totalization agreement work?

The totalization agreement is a treaty that stops you paying social security tax to both countries on the same work. For self-employed people, it assigns coverage to the country where you live.

Coverage follows your residence

The Social Security Administration's manual on the US-UK agreement says it removes dual coverage of self-employment income. It does so by assigning coverage to the country where the worker is resident. Consequently, a self-employed American in the UK pays UK National Insurance and is exempt from US self-employment tax on that income.

The certificate of coverage

A certificate of coverage is the document proving you are covered by one country's system. The IRS page on totalization agreements says you get it from the social security agency of the country that covers you. For a UK resident, that means HMRC. Request it early, because you need it to claim the US exemption.

Claiming the exemption on your US return

The Schedule SE instructions explain how to claim. You do not complete Schedule SE for the exempt earnings. Instead, you attach a copy of the certificate to your return and enter "Exempt, see attached statement" on Schedule 2 of Form 1040. Additionally, you still file a US income tax return and report the business profit on Schedule C.

Keeping the exemption in place

The exemption depends on the certificate, so keep a copy with every year's records. If you move country or start working in the US for a period, your coverage may change. In that case, check the position before you file. A self-employed American in the UK who leaves the certificate off the return may face a US self-employment tax bill they never owed.

What UK tax and National Insurance do you pay?

You pay UK income tax on your profit through Self Assessment, plus Class 4 National Insurance. Class 2 contributions are no longer compulsory.

Income tax for 2026/27

The GOV.UK page on Income Tax rates and allowances sets the personal allowance at £12,570 for 2026/27. The basic rate of 20% applies up to £50,270, the higher rate of 40% up to £125,140, and 45% above that. Moreover, the allowance falls by £1 for every £2 of income over £100,000.

Class 4 National Insurance

Class 4 is the National Insurance charged on self-employed profits. The GOV.UK page on self-employed National Insurance rates gives 6% on profits between £12,570 and £50,270 for 2026/27. Above £50,270, the rate is 2%. You pay it through your Self Assessment return alongside income tax.

Class 2 is no longer compulsory

The requirement to pay Class 2 contributions ended on 6 April 2024, as the HMRC National Insurance manual records. If your profits are at or above the small profits threshold, contributions are treated as paid. Below that threshold, you can choose to pay voluntary Class 2 to protect your State Pension record. The GOV.UK rates page gives the current weekly amount.

How do you avoid double income tax?

You usually claim the foreign tax credit for UK income tax on your US return. The credit reduces US income tax, not self-employment tax.

The foreign tax credit

The foreign tax credit is a dollar-for-dollar reduction in US income tax for income tax paid abroad. You claim it on Form 1116. UK income tax rates are often higher than US rates on the same profit. Therefore, the credit often removes US income tax on your business profit, and unused credits can sometimes be carried to other years.

National Insurance is not creditable

UK National Insurance cannot be claimed as a foreign tax credit. IRS Publication 514 says no credit or deduction is allowed for social security taxes paid to a country with which the US has a social security agreement. The UK is such a country. Consequently, only your UK income tax goes into the credit calculation.

Credit or exclusion?

Some self-employed people use the foreign earned income exclusion instead of the credit. However, the exclusion can waste UK tax that would otherwise create carryover credits. It can also affect other parts of the return. We usually model both ways before choosing, because the right answer depends on your profit and your other income. Our guide to the US-UK double taxation treaty explains how the treaty fits in.

What are the deadlines and filing rules?

The UK tax year runs from 6 April to 5 April, while the US year follows the calendar. Each country has its own registration and filing dates.

Registering with HMRC

If you start working for yourself, you must tell HMRC by 5 October after the end of the tax year in which you started. The GOV.UK page on registering for Self Assessment as self-employed explains the process. Additionally, the trading allowance means you need not register if your gross trading income is £1,000 or less.

UK and US filing dates

The GOV.UK page on Self Assessment deadlines gives 31 January for online returns and payment. On the US side, the IRS gives people living abroad an automatic two-month extension to 15 June. However, interest runs on any US tax unpaid after 15 April.

Payments on account

Payments on account are advance payments towards next year's UK tax bill. Once your Self Assessment bill passes a set level, HMRC usually asks for two each year. The first is due on 31 January and the second on 31 July. Consequently, your first year of self-employment can bring a larger January bill than you expect. Set money aside from each invoice so the January and July payments do not catch you short. The US has its own estimated tax system too, although credits often leave little or nothing to pay there.

Making Tax Digital for Income Tax

Making Tax Digital for Income Tax is HMRC's system of digital records and quarterly updates. The GOV.UK page on checking whether you must use it sets the timetable. It applies from 6 April 2026 if your qualifying income in 2024/25 was over £50,000. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028, based on earlier years.

What Making Tax Digital means for your US return

Quarterly updates do not change the US rules. However, digital records kept for HMRC make the US return easier, because profit can be checked month by month. A self-employed American in the UK still needs to convert profit into dollars for the US return. Moreover, the UK tax year end must be matched to the US calendar year.

Converting pounds to dollars

Your US return is prepared in dollars. The IRS publishes yearly average currency exchange rates that many preparers use for business income. Whichever method you choose, use it consistently from year to year. Similarly, convert UK tax paid on the same basis when you claim the credit.

A worked example for a self-employed American in the UK

Consider a typical case. Tom is a US citizen and a freelance designer living in Bristol. His profit for the 2026/27 UK tax year is £60,000, and his profit in 2024/25 was similar. He has no other income. This is an illustrative example, not a real client.

In the UK, Tom pays income tax and Class 4 National Insurance through Self Assessment. Because his 2024/25 income was over £50,000, he keeps digital records and sends quarterly updates from April 2026. On the US side, he reports his profit on Schedule C. He attaches his HMRC certificate of coverage and writes the exemption on Schedule 2, so he pays no US self-employment tax.

How Tom's income tax works out

Tom claims the foreign tax credit for his UK income tax on Form 1116. His UK income tax is higher than the US income tax on the same profit, so no US income tax is due. His National Insurance plays no part in the credit. Consequently, his total tax is broadly what a UK resident would pay, and the US return mainly records that position. However, his US and UK years must be lined up carefully, because the UK year ends in April.

How US UK Tax Experts can help

US UK Tax Experts prepares your UK Self Assessment return and your US return together, from one file, so the profit figures agree. We prepare the Schedule C, the totalization exemption statement and the foreign tax credit forms. We also prepare your UK return under Making Tax Digital where it applies. Our UK Self Assessment service and US federal returns service explain what we prepare. Our article on Self Assessment for Americans in the UK covers the UK return in more detail.

Conclusion

A self-employed American in the UK files in both countries, but should pay social security tax in only one. The totalization agreement assigns you to UK National Insurance while you live here, if you claim it properly. The foreign tax credit then usually removes US income tax, although National Insurance is not creditable. Register with HMRC on time, watch the Making Tax Digital thresholds and keep one set of records for both returns.

Contact us

If you are a self-employed American in the UK and want both returns prepared together, email hello@usuktaxexperts.com or use our contact form. Tell us what your business does and which years you have filed. We reply within one working day.