Seafarers Tax UK

What is Seafarers’ Earnings Deduction?

The Seafarers’ Earnings Deduction (SED) is a less commonly known yet distinct piece of UK tax legislation that grants seafarers the right to claim 100% tax exemption on foreign earnings, as long as they qualify.

This law came fully into effect in 2012 after a long battle between the trade unions and HMRC, spanning almost 15 years in the courts until both parties reached an agreement. At the time of writing, the seafarers’ earnings deduction does not apply to the Armed Forces (other than the Royal Fleet Auxiliary) deployed overseas, although the unions have always wanted this exemption included.

Even after ratification, many seafarers still fail to use the exemption. It was introduced with consideration for the fact that seafarers and yacht crew spend long periods of time at sea, in a highly competitive market, with the potential to play a huge role in the defence needs of UK waters.

Due to the pressures of globalisation and increasing competitiveness within the employment sector, it was seen as only fair to give offshore workers suitable financial compensation through reduced tax liabilities.

Consultations with yacht crew, commercial seafarers and many others have made it apparent that a large proportion of eligible seafarers are not making use of this opportunity. In most cases this is because they were not aware of the legislation, believed they did not qualify, or were unsure how to claim because the rules were so obfuscated.

To get the deduction you must have

• You worked on a ship (not an offshore installation).
• You worked outside the UK for a qualifying period, usually 365 days.
• You are resident in the UK (or resident for tax purposes in an EEA state other than the UK).
• You have at least one voyage that begins or ends at a foreign port in the qualifying period.
• No single UK visit lasts more than 183 consecutive days, and you meet the half-day rule.

You cannot get the deduction if you were

• Royal Navy and other Crown employees (Royal Fleet Auxiliary can qualify if the other tests are met).
• People who are not UK resident.
• Self-employed workers who are not employees on a ship.
• Duties on offshore installations that are not ships for tax purposes.

Whilst there may be no tax to be paid with regard to your income from employment at sea, more often than not HMRC will still expect to receive a declaration of this income. You will need to keep records in case HMRC want to check your claim.

• A computation of your dates and working sheet HS205
• Air tickets or other travel vouchers
• Hotel bills or other receipts
• Passports and visas
• Seafarer’s discharge book, discharge certificates, or a letter from the Captain or the company
• For North Sea duties, the midnight position sheet showing whether the ship is in or outside 12 NM at midnight

How do I claim Seafarers’ Earnings Deduction?

To claim seafarer’s earnings deduction you need to have been wholly or partly absent from the UK for an eligible period, the majority of these days should have been offshore, and complete a voyage or part voyage that begins or ends outside of the UK. To check if you are entitled, calculate how many days you were offshore in a 365-day period and check it using the HS205 working sheet.

Once you have established a qualifying period, you are able to declare your income under SED. The simplest way of achieving this is by spending 183 days outside of the UK in the 365-day period following your departure, and by being outside of the UK at midnight on day 365.

You are considered to be absent from the UK on a particular day if you are outside the UK at midnight at the end of that day and go to a foreign port. Non-work days spent outside the United Kingdom may be counted as days of absence.

During your qualifying period you are permitted return visits to the UK but must meet the following guidelines:

• No single return visit may last for more than 183 consecutive days.
• The total number of days you have spent in the UK is not more than one-half of the total number of days from your first day abroad to the last day of the period you spent abroad after that return visit.
• Intervening days in the UK may only be counted if they occur between periods of absence.
• Essentially, you must have spent more than half of your time outside the UK since the beginning of your working overseas. This is the half-day rule.

You must be employed to work on board a ship.

What is a ship?

A ship is not defined in UK tax law, but to qualify for SED you must work on a ship: a vessel that can navigate and manoeuvre using its own power. Offshore sites used in the oil and gas industry are not classed as ships for SED. The following do not qualify:

• Fixed production platforms
• Floating production platforms
• Floating storage units
• Floating production storage and offloading vessels
• Mobile offshore drilling units

Does dry-docking of a vessel affect my claim?

It is possible for a ship in a dry dock to be regarded by HMRC as not being a ship for tax purposes. They consider that when a vessel is in a dry dock it can still be regarded as a vessel, but if the hull of the vessel is breached for any purpose then HMRC’s attitude is that it then ceases to be a ship for tax purposes as it is not “capable of being used in navigation”.

Request an NT tax code

You could ask your employer to pay your wages without deducting income tax, using tax code NT. To qualify you must:

• Be a United Kingdom resident
• Work on board a vessel classed as a ship for seafarers’ earnings deduction purposes
• Complete a Self Assessment tax return every year
• Have a contract of employment of at least 12 months. If you don’t have this you must be in continuous employment with the same employer for at least 6 months and working outside the United Kingdom

For more information, help or advice on seafarers tax UK or seafarers’ earning deduction, get in touch.