HMRC and US LLCs: The Opaque Entity Tax Trap for UK Founders

For years, UK residents who formed US single-member LLCs operated under a reasonable assumption: because the IRS treats a single-member LLC as a "disregarded entity," the income passes through to the individual. HMRC would see it the same way. The founder would report LLC income on their UK Self Assessment as personal income, and the US-UK Double Taxation Convention would handle any overlap. That assumption broke in April 2025. HMRC now classifies US LLCs as "opaque" entities -- treated as if they were corporations, not pass-through vehicles. This creates a structural mismatch: the IRS sees the LLC as invisible (income taxed on the individual's return), while HMRC sees it as a separate taxable entity (a foreign company). The US-UK Double Taxation Convention's relief mechanisms were not designed for this asymmetry. A UK resident operating a US LLC may face a scenario where neither country's tax credit provisions fully eliminate the double taxation. The change did not happen overnight. H