Dear Contractor Doctor,
I have an offer to work from my home in the UK for a US-based company as a
contractor. The US-based company needs some kind of US Tax ID so that they can pay my salary without withholding tax.
How should I handle this?
Contractor Doctor says:
If you have your own limited company, then working for a US-based company is no different from working for one over here. You invoice, and they pay you as you do so.
We called the US Consulate to confirm this, and the commercial department there confirmed that there is no obstacle to working as a company abroad for a US company. The situation would be slightly different if you had to work as a self-employed contractor, but you would then be obliged to provide proof that you were not resident in the United States.'
Your problem is cultural rather than legal. American companies are not as experienced in working with foreign ones as European companies are. The staff might not to know the procedures and it is up to you to help them.
Just explain that your company has a British tax ID provided by the British equivalent of the US Internal Revenue Service (we know that here it's Companies House, and we refer to your Company Number, but the Americans could find that confusing.) That should be used instead of what the Americans refer to as an Employer Identification Number.
As for payment, the Americans may complain that sending money to your bank incurs higher bank costs than usual. Suggest that they use PayPal or Moneybookers, or a similar online service. They will be grateful to you.
There is no legal barrier to a British contractor working from the UK for a company based in the US
The US firm might want you to quote and bill them in USD for any work you do, rather than GBP. For short term work this is fine, but in the longer term this could present a currency risk to you. You can mitigate this type of risk by 'Hedging' - which means protecting yourself against future currency changes. Business Link has an excellent section on foreign currency and exchange risks which you might find useful.
Good luck with your contracting!