Seafarers Tax UK

Seafarers tax UK

If you work at sea outside of the UK check if you can claim tax relief on your earnings.

If you’re an employee and work at sea, you may be able to reduce your tax bill by getting the Seafarers Earnings Deduction (SED).

What is Seafarers Earning 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 sadly doesn’t apply to the Armed Forces (other than the Royal Fleet Auxiliary) deployed overseas although the unions have always wanted this exemption included in the bill. 

Even after the first ratification of the bill, eighteen years on from the 1988 Finance Act, many seafarers still fail to use the exemption. The reason that this tax exemption came into effect was 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.

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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 alarmingly apparent that a large proportion of eligible seafarers are not making use of this fantastic opportunity to claim exemption from taxation.

It appears that in most cases this is either because they weren’t aware of the legislation, they believed they did not qualify for the deduction, or that they are unsure how to claim it because the rules and regulations surrounding it were so obfuscated.

Work on a ship

To get the deduction you must have: 

  • worked onboard a ship
  • worked outside of the UK long enough to qualify for the deduction – usually a minimum period of 365 days 
  • been resident in the UK or UK resident for tax purposes in a European Economic Area State (other than the UK) You can’t get the deduction if you were: 
  • a Crown employee (for example, a Royal Navy sailor)
  • not a UK resident

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 HM Revenue and Customs want to check your claim.

Things you may need to keep are

  • working sheet HS205
  • Travel tickets and air tickets
  • Hotel bills
  • Passports and Visas
  • Seafarer’s Discharge Book
  • Logs of ships you worked on

How do I claim Seafarers Earnings Deduction?

To claim seafarer’s earnings deduction you need to have been wholly or partly offshore 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 to this, calculate how many days you were offshore in a 365 days period and check it using the HS205 working sheet.

Once you have established a qualifying period, you are able to declare your income under the seafarers earnings deduction SED. The simplest way of achieving this is by spending 183 days outside of the UK in the 365 days 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 of course 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, and this is referred to as ‘the half-day rule’.

You must be employed to work on board a ship

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What is a ‘Ship’ Identified as?

A ship is not defined in UK tax law, but to qualify for seafarers earnings deduction SED you must work on a ship, onboard 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 in reference to the seafarers earnings deduction SED. The following DO NOT qualify for seafarers earnings deduction:

  • 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, they can do this by using tax code NT. To qualify for the NT tax code you must:

  • Be a United Kingdom Resident
  • Work on board a vessel classed as a ship for seafarers earning 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 please get in touch with us.

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