Hiring in Britain: what an American employer needs to know about payroll and tax

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

An American company hires its first employee in Britain. Nobody in the business has run a British payroll, and the contract names the law of a US state. The tax questions start on day one, and most of them belong to the employer.

Working remotely across the Atlantic creates duties on both sides. So this guide covers what the company must do, what the employee must do, and the risk a single remote hire creates for the business.

Key takeaways

• Britain taxes employment income for work done in Britain, so working remotely here is taxed here.
• A US employer with no UK presence usually cannot be forced to run PAYE.
• The employee can then set up a direct payment scheme to pay tax and National Insurance.
• A certificate of coverage keeps social security in one country rather than two.
• A remote employee can create a taxable presence in Britain for the employer.

What does the employer have to do?

Less than most companies fear, but not nothing. A company with no UK entity usually avoids running PAYE, yet it still needs to know where its people sit and what they do there. Working remotely is an ordinary arrangement now, but it still has a location.

Employment rights come first in practice. A worker based in Britain generally acquires British statutory rights, including notice periods and holiday entitlement, whatever the contract says.

Insurance and equipment follow. Employers liability cover, data rules and health and safety duties all attach to the place the work happens, not the place the payroll runs.

What is the risk for the employer?

A taxable presence, which is the risk most companies miss. An employee who habitually concludes contracts in Britain can create a taxable presence for the company. UK corporation tax then applies to the profits earned here.

A purely back-office role rarely creates that exposure. Sales and business development roles are the ones that do, because the treaty focuses on authority to bind the company rather than on job titles. Sales roles differ.

Employment law adds its own layer. A British-based employee generally acquires UK statutory rights, whatever the contract says, which matters more to most employers than the tax does.

Would an employer of record help?

Often, yes. An employer of record hires you locally on the American company's behalf, running a compliant British payroll and absorbing the administration. The company pays a fee, and the employee gets an ordinary payslip. It suits companies with several people working remotely in Britain.

It costs more than a direct scheme, and it does not remove every permanent establishment question. For a company hiring several people in Britain, though, it is usually cheaper than building a payroll from scratch. Many firms still choose it.

Who operates the payroll?

That depends on whether the employer has a presence in Britain. A company with a UK branch or subsidiary runs PAYE in the ordinary way. A company with no UK presence generally cannot be required to, which leaves a gap. Ask them plainly.

The employee fills that gap themselves. Per the GOV.UK guidance on paying employees working abroad (opens in a new tab), employees of foreign employers can pay their own income tax and National Insurance.

These direct payment schemes are the usual answer. You register with HMRC, deduct your own tax and contributions, and pay them over. It is paperwork, not difficulty.

But somebody has to do it. The forms are short.

What should the contract say?

Get the basics in writing before you start. The contract should name the country of work, the currency of pay, and who accounts for tax and social security. Put it in the offer letter if you can.

It should also cover equipment, expenses and any travel expectation. Those details decide several tax questions later.

Ask for a written statement of terms as well. British employees are entitled to one, and it helps if the arrangement is ever questioned.

What is the basic rule?

Tax follows the place of work, not the place of payment. Salary for duties performed in Britain is British employment income. The employer being American, and the money arriving in dollars, changes nothing. Working remotely changes none of it.

For a British employee with no American connection, the United States has no claim at all. The work happens outside America, so the income is not US-source. Any withholding applied by the payroll system is an error to correct.

The employer is American. The desk is British. Tax follows the desk.

What happens to National Insurance?

Someone living and working in Britain normally pays British contributions. Where the employer has no UK presence, that usually runs through the same direct scheme as the income tax. Employer contributions may or may not apply, depending on the arrangement. That is the default.

A worker sent from America for a limited period can stay in the US system instead. Per the IRS guidance on totalization agreements (opens in a new tab), a certificate of coverage prevents both countries charging social security on the same wages.

Get that certificate before the work starts. Applying afterwards is possible but slower, and both systems can charge in the meantime. Ask your employer to apply, since the request comes from them.

How do you set it up properly?

Sort the arrangement before the first payday, because retrofitting a payroll is far harder than starting one. These steps cover the usual case of a British resident employed by an American company:

1. Confirm whether the employer has any UK entity or branch.
2. Agree in writing who accounts for tax and National Insurance.
3. Register the direct payment scheme with HMRC where the employee carries it.
4. Apply for a certificate of coverage if the posting comes from America.
5. Set aside tax from each payment rather than at year end.
6. Register for Self Assessment and file each January.
7. Review the permanent establishment position if the role involves sales.

Our guide to registering for Self Assessment covers the HMRC side, including the October deadline that catches people in their first year.

Does your employer's state matter?

Rarely, for a British-based employee. States tax people who live or work there, and you do neither. Payroll systems sometimes apply state withholding by default, which is a setup error rather than a liability.

Ask for it to be switched off at the start. Recovering state tax from abroad is slow, and some states want a return simply to give it back. One email often does it.

A worked example

Take an illustrative example. A developer in Leeds joins a software company based in Denver, earning $110,000. The company has no UK entity and pays her gross in dollars each month. She is working remotely from home full time.

She registers a direct payment scheme, converts each payment into sterling, and pays income tax and National Insurance herself. She files a Self Assessment return each January covering the same income. It took her an afternoon.

Because she is British with no US connection, she owes America nothing. Her employer asked her to complete a W-8BEN, which stopped the payroll system withholding American tax by default.

What about currency and timing?

Pay arriving in dollars needs converting for HMRC. Use the rate on the date each payment lands, or a published average applied consistently. Keep the bank records showing what actually reached your account.

A monthly note is enough. Keep it simple.

The exchange rate moves your taxable income in ways a British salary never does. Setting aside a fixed percentage of each payment, rather than a fixed sum, protects you when the rate turns.

What if the employee is American?

They file in both countries, and the British tax usually comes first. The reliefs available are the same ones every American in Britain uses, so our guide to Americans in the UK covers them in full.

Can you keep a US 401(k) while working remotely?

Often not, at least for new contributions. Plan participation usually depends on a US payroll, which no longer exists once you move. Existing balances stay invested, and the treaty protects the growth while you live in Britain.

A UK workplace pension usually replaces it. Where the employer runs no British scheme, personal pension contributions still attract UK relief within the annual limits. The relief is generous.

Our guide to US retirement accounts in the UK covers the American accounts you already hold.

Holidays, travel and US workdays

Days spent working in America change the picture. Those workdays produce US-source income, even for someone working remotely from Britain for most of the year.

Small numbers rarely create a filing duty. Regular trips can, so keep a simple travel log with dates. A week or two is usually fine.

The same log helps with National Insurance and with any treaty claim. It takes seconds a week to keep.

Do equity awards complicate it?

They usually do. Share awards from an American employer vest under US plan rules, while Britain taxes the portion relating to work done here. The split depends on where you worked during the vesting period. Ask early.

Our guide to share schemes across two countries explains that apportionment. Raise it with your employer early, because payroll systems rarely handle cross-border vesting without prompting.

Mistakes and traps when working remotely

These problems are routine, and nearly all of them stem from assuming the employer handles everything:

• Receiving gross pay for months without setting anything aside for tax.
• Assuming an American payroll satisfies HMRC.
• Letting US withholding continue when no American tax is due.
• Skipping the certificate of coverage and paying social security twice.
• Ignoring permanent establishment risk in a sales role.
• Converting a year of dollar payments at a single year-end rate.

Self-employed arrangements follow different rules again. Our guide to UK contractors with US clients covers invoicing rather than employment.

How US UK Tax Accountants helps

We set up the scheme, calculate the deductions, and file the returns on both sides where they arise. Our UK Self Assessment service covers the British filing, alongside any American return the employee needs.

In our practice the first three months decide how smooth the year is. We agree a fixed fee in writing before any work begins, for employees and employers alike.

Set it up before payday

If you are working remotely from Britain for an American employer, a short review puts the payroll and the reliefs in the right place. Tell us who employs you and where they are registered. You can book a consultation and hear back within one working day.

Last reviewed 17 September 2026 by the US UK Tax Accountants Tax Team. This article is general information, not personal tax advice — speak to a qualified US/UK tax adviser about your own position.

For the neighbouring question, Locum doctors and travel nurses: what crossing the Atlantic does to your tax walks through it in detail.