Form 5471 for US owners of UK limited companies

Owning or running a UK limited company as a US person brings an annual US information return, Form 5471, with an automatic US$10,000 penalty per form per year if it is missed. No tax needs to be due for the penalty to apply.

What the form is

Form 5471 reports a US person's interest in a foreign corporation and, where the company is a controlled foreign corporation (CFC), the income the US owner must include each year. A UK Ltd or plc is a foreign corporation; it is a CFC when US shareholders who each own at least 10% together own more than 50% by vote or value. A one-person UK consultancy owned by a US citizen is a CFC from day one.

Who files

The five categories overlap; most UK company owners are Category 4 (control: more than 50%) and Category 5 (a US shareholder of a CFC). Category 2 and 3 catch officers and directors and anyone acquiring 10%, so a US director of a UK company with a 10% stake files even without control. A dormant company still triggers the form.

What goes in it

Up to a dozen schedules: stock and shareholders (A, B), income statement (C), taxes paid (E), balance sheet (F), other information (G), current and accumulated earnings and profits (H, J), shareholder income including Subpart F (I), related-party transactions (M), organisation and reorganisation events (O). UK accounts prepared under FRS 102 are restated to a US GAAP presentation and translated into dollars at the average rate for the income statement and the year-end rate for the balance sheet, with the method kept consistent year to year.

Subpart F and GILTI

A CFC's passive income (dividends, interest, rents, royalties) and certain sales and services income is Subpart F income, taxed to the US owner in the year it arises whether or not distributed, subject to a de minimis exception (less than the lower of 5% of gross income or US$1 million). Most of the operating profit of a UK service company is caught instead by the GILTI rules, covered in our GILTI article. UK corporation tax feeds foreign tax credits against both.

Penalties

US$10,000 per form per year, automatically assessed, plus US$10,000 for each 30 days after an IRS notice up to a further US$50,000, and a reduction in foreign tax credits. Litigation over automatic assessment continues; relying on it is not a strategy.

UK features that need care

• Salary versus dividends. Salary reduces company profit (and GILTI); dividends from a CFC have their own US treatment and interact with earnings and profits.
• Business Asset Disposal Relief has no US equivalent; the sale of UK company shares is a US capital gain with possible dividend recharacterisation under section 1248.
• Striking off or liquidation is a final Form 5471 year and a deemed distribution.
• VAT is excluded from income in the US presentation.
• IR35 can change the character of what the company receives.

Catching up

Missed Forms 5471 with otherwise complete returns can often be filed under the Delinquent International Information Return Submission Procedures with a reasonable-cause statement. Where income was also unreported, the Streamlined procedures apply. Quiet filing of amended returns is the riskiest route.

Frequently asked questions

My company is dormant. Do I still file?

Yes, if you meet a category. The schedules will mostly show zeros.

I own 40% with a British partner owning 60%. Do I file?

You are likely a Category 3 filer in the year you acquired the shares and may have later obligations; the company is not a CFC unless US persons hold more than 50%. Your business bank account is still reportable on your FBAR if you can sign on it.

Which exchange rate?

Average rate for the year for income, year-end rate for the balance sheet, consistently applied. The IRS publishes yearly average rates.