TN 16 (11-96)

RS 02001.371 Self-Employment Rule - U.S. United Kingdom Agreement

The agreement also contains a rule that eliminates dual coverage of self-employment income by assigning coverage to the country in which the worker is a resident. Under this rule, a self-employed U.S. resident whose earnings would otherwise be compulsorily covered under both U.S. and U.K. law is covered only by the United States. Similarly, a dually covered U.K. resident is covered only by the United Kingdom. (See GN 01702.230 concerning determinations of residence.) Since residents of third countries generally are not covered by the U.K. for self-employment, this rule resolves virtually all cases of dual coverage of self-employment.

In accordance with this rule, a self-employed U.S. citizen who is a resident of the United Kingdom is covered only under U.K. law. Although the person is exempt from paying U.S. SECA tax in this situation, he/she is still required to file a U.S. income tax return. In preparing the Schedule SE, the individual should indicate that his/her earnings are exempt from SECA tax under the agreement and attach a copy of the certificate of coverage issued by the United Kingdom (see RS 02001.385) as proof of the exemption.