Going freelance in London creates a US filing nobody mentions

Figures relate to tax year 2025-26 (UK) · 2025 (US)

An American who goes freelance in London has created something the IRS has a form for. Not the income. The business itself.

That form is Form 8858, and it reports a foreign branch or a foreign disregarded entity. A UK sole trade is usually both of those at once.

However, almost nobody is told about it. The UK accountant has no reason to raise it. The American software rarely asks the question that would surface it.

Key takeaways

• A UK sole trade counts as a foreign branch, so Form 8858 usually applies.
• The form reports the business, not just the profit it produced.
• A UK limited company needs it only after a check-the-box election.
• It carries a $10,000 penalty for each year that is missing.
• Filing it changes nothing you owe in most years.
• Figures go on in dollars, using a published exchange rate.
• Schedule M matters only for money moving between you and the business.
• Form 8858 goes in with your return, never on its own.

What is Form 8858?

An information return about a business you own abroad. It covers a foreign disregarded entity or a foreign branch. You report what the trade earned, what it holds and how Britain taxes it. The IRS wants sight of the business itself, not simply the profit you declare.

According to IRS guidance on the form, it is filed with your income tax return rather than sent separately.

It is disclosure, not a tax calculation.

Who actually has to file it?

Any US person who owns a foreign disregarded entity, or who runs a foreign branch. In Britain that usually means a sole trader, a freelancer, or somebody with a limited company they have elected to look through. Partners in a partnership that holds one are caught as well.

Our guide to running a UK limited company as an American covers the corporate side.

The test is ownership and control, not profit.

Does a UK sole trade count?

Nearly always. A trade carried on abroad is a foreign branch in American terms. There is no company, no registration and no separate legal person, yet the branch definition still reaches it. So a freelance designer in Manchester has the same duty as a consultant with an office.

Our guide to self-employment in the UK as an American covers the wider picture.

Many people have traded for years without knowing.

What is a foreign disregarded entity?

A company abroad that American law looks straight through. It exists for Companies House and it exists for HMRC. For the IRS it is simply you, trading. Income, costs and assets land on your personal return as though the company were not there at all.

The entity is real in Britain and invisible in America.

That mismatch is the whole reason the form exists.

Does a UK limited company ever count?

Only once you elect. By default the IRS treats a UK limited company as a corporation, which brings Form 5471 instead. Make a check-the-box election and the same company becomes disregarded, which moves you onto Form 8858. The choice is yours, and it is rarely obvious.

Our guide to Form 5471 categories covers the corporate route.

One election decides which form you live with.

What does the election change?

A great deal. A disregarded company puts the trading profit straight onto your personal return, so the GILTI rules fall away. Equally, the company's UK corporation tax becomes a credit you can use yourself. In exchange you give up the deferral a corporation offers.

Our guide to GILTI for UK company owners covers what you avoid.

Therefore the election is a planning decision, not an administrative one.

Which schedules does it ask for?

An income statement and a balance sheet, both in dollars. There is a section on the entity's own tax position, and one on its currency. Most UK sole traders complete a short version, because a simple trade has little to show beyond turnover and expenses.

The figures come straight from your UK accounts.

Nothing has to be audited for this purpose.

Do you file Schedule M?

Only when the entity and its owner deal with one another. Schedule M records money moving between you and the business, such as loans or charges. A plain sole trade has no such dealings, because you and the branch are already the same person in American eyes.

A disregarded company with a director's loan is the common exception.

Our guide to directors' loan accounts covers that balance.

How do you convert the figures?

Use a published rate, applied consistently. Per the IRS, an average rate for the year suits income and expenses. Balance sheet figures take the rate at your year end instead. Consistency matters more than the source you pick, so record which one you used.

Our guide to exchange rates on a US return covers the detail.

Keep the rate with the working papers.

When is it due?

With your income tax return, extensions included. An American abroad gets the automatic June deadline and can push it to October. So the form inherits whatever date your return carries, and it has no separate filing of its own.

Our guide to US tax deadlines for expats covers the dates.

A late return makes the form late as well.

What if you file late?

A $10,000 penalty applies for each annual accounting period that is missing. A further charge builds if the IRS writes and you still do nothing. Reasonable cause can clear it, but you have to ask, and you have to explain properly.

Our guide to reasonable cause penalty relief covers the argument.

In our practice a first offence is usually abated.

Does it affect your foreign tax credit?

Indirectly. The form claims nothing itself, but it sets out the British tax the branch paid. Those figures feed the credit you claim elsewhere, so a sloppy Form 8858 makes that credit harder to defend if anybody ever looks at it.

Our guide to Form 1116 income baskets covers where the credit lands.

Branch profit sits in the general basket.

Does it change what you owe?

Usually not a penny. The profit already sat on your return through Schedule C or the partnership pages. Form 8858 simply describes the business that produced it. That is exactly why people miss it: nothing on the tax calculation moves when you add it.

The cost of ignoring it is the penalty, not the tax.

So it is a cheap thing to get right.

Is it the same as Form 5471?

No, and the two rarely overlap. Form 5471 covers a foreign corporation you have not elected to look through. Form 8858 covers the branch or the disregarded entity instead. One company can move between them, but it never sits on both at once.

A partnership holding a branch brings the form in too.

Our guide to UK LLPs and Form 8865 covers that structure.

A worked example

Take an illustrative example. An American software contractor in Bristol trades as a sole trader and bills UK clients.

She reports the profit on Schedule C and pays British tax through Self Assessment. Her American return already shows every pound she earned.

However, the trade is a foreign branch, so the form belongs with that return as well.

She had filed for four years without it. The exposure was $40,000 on a business that owed no extra tax at all.

The same trade, two systems

Does it interact with self-employment tax?

Not directly, though the same trade drives both. Self-employment tax turns on the totalisation agreement rather than on this form. An American paying UK National Insurance normally sits outside the American charge, with a certificate to prove it.

Our guide to certificates of coverage covers the proof.

The form asks nothing about social security.

What about a UK partnership?

A partnership is a different animal. An ordinary UK partnership or an LLP goes on Form 8865, not here. However, if that partnership itself runs a branch abroad, each partner can pick up a filing obligation through it.

Layered structures catch people out most often.

Map the chain before deciding which forms apply.

Does a dormant company still need it?

Yes, while the election stands. A disregarded entity that trades nothing still existed during the year, so the filing is still due. You submit it showing nil figures, which takes minutes. Dissolving the company is what ends the duty.

Our guide to striking off a UK company covers closing it properly.

Dormant does not mean invisible.

What records do you need?

Your UK accounts, the exchange rates you applied, and a note of any money moving between you and the business. Those three cover almost every line. Keep them with the return rather than in a folder of their own.

A trial balance is usually enough to complete it.

Your UK accountant can supply one on request.

Does HMRC want anything equivalent?

Nothing like it. Britain taxes the profit of a sole trade through Self Assessment and asks no structural questions at all. No British return describes the business the way this one does, which is partly why the duty surprises people.

Our guide to registering for Self Assessment covers the UK side.

The two systems want genuinely different things.

What if you have more than one?

You file one for each. Two trades mean two forms, and a branch inside a disregarded company means a form for each layer. They go quickly once you have done the first, because the structure simply repeats.

Number them consistently from year to year.

A changed order looks like a changed structure.

Does it affect the earnings exclusion?

Not by itself. The exclusion covers earned income, and branch profit can qualify where you meet the residence or presence test. What this filing does is describe where that income came from, so the two ought to agree with one another.

Our guide to the foreign earned income exclusion covers the test.

Equally, a mismatch invites questions.

Can you stop filing it?

When the branch stops, yes. Cease the trade, or dissolve the entity, and the final year is your last one. Marking that year properly matters, because an unexplained gap reads as a missed filing rather than a closure.

Say on the form that it is the last one.

Keep the cessation date with your records.

What if you have never filed one?

You are in common company, and there is a route back. The delinquent international information return procedures let you submit the missing years with a reasonable cause statement attached. Filing quietly without that statement is the version that goes wrong.

Our guide to the delinquent information returns procedure covers it.

Our streamlined filing service handles the larger catch-ups.

Does your UK year end matter?

It does, and a mismatch creates work. Britain lets a sole trader pick an accounting date, while the American return runs to December. Where the two differ you apportion, or you align the UK period to the calendar year. Aligning is simpler and usually cheaper over time.

Our guide to apportioning UK employment income covers the same arithmetic.

Basis period reform has pushed most sole traders towards an April date anyway.

Does a UK branch of a US company count?

That runs the other way, and the answer is still yes. An American company trading through a UK establishment holds a foreign branch, so the form follows the business abroad rather than the owner. The filer is the company instead of you personally.

Shadow payroll questions usually arrive alongside it.

Our guide to shadow payroll between the US and UK covers the employment side.

Is an election ever worth reversing?

Sometimes, though rarely in a hurry. Revoking a check-the-box election normally locks you out of changing again for sixty months, and the revocation can itself be a taxable event. So model the five years ahead rather than the next return alone.

A growing company is the usual reason to look again.

Our guide to selling a UK business covers the exit.

How to handle Form 8858

1. Work out whether your UK trade is a branch or a company.
2. Decide whether a check-the-box election suits the company.
3. Pull the UK accounts for the same period as your US return.
4. Convert the figures using a published rate and record it.
5. Complete one Form 8858 for each branch or entity you hold.
6. Add Schedule M only where money moved between you and the business.
7. File it with your return rather than on its own.
8. Catch up missed years through the delinquent procedures.

Mistakes and penalties we see with Form 8858

The first is assuming a sole trade is too small to report. Size is irrelevant here.

The second is sending it separately, which leaves the IRS with no return to attach it to.

The third is checking the box without modelling it, which can hand you a bill the corporate route avoided.

The fourth is leaving years unfixed, because the $10,000 charge applies to every one of them.

How US UK Tax Accountants helps

We start by mapping what you actually own, because the form follows the structure rather than the income. A freelance trade and a disregarded company need different answers.

Then we prepare it alongside the return so the two agree. Our US federal returns service covers the American filing.

If you have traded here for years without one, get in touch before the IRS raises it.

Last reviewed 20 October 2026. This article is general information and not personal tax advice, and nothing here is a recommendation about any structure.

For the neighbouring question, One employee working from a spare room can tax your company walks through it in detail.