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What is Seafarers Earnings Deduction?

Pay Less Income Tax with HMRC’s SED Programme

For those residents that are employed as a seafarer on a ship may be entitled to a very interesting tax legislation that makes them eligible for 100% tax exemption on foreign earnings. Within this article, we aim to explain the intricacies of this tax deduction and how it applies to the UK and its citizens. After 15 years of legal arguing between trade unions and the HRMC the final laws have been updated as of 2012 and unfortunately, members of the armed forces are exempt from this earnings deduction. We will explain more below.

Yacht crew have long enjoyed tax relief under HMRC’s SED rules. Image: Blue Water Yachting

The first version of the tax exemption came into effect for plenty of reasons. They were mainly designed to make it financially beneficial for UK employees in the competitive job market and pressure in the global labor markets. Since seafarer employed people spend a majority of time outside of the UK, the highly competitive labour market and for defense needs of the UK, legislation was introduced to create the tax break specifically for those who work on ships outside of the UK in foreign waters.

Unfortunately, the rules and laws surrounding the Seafarers Earnings Deduction are hard to translate within the books of the HMRC. However, it is possible to translate these rules and the main requirement is that you work on a ship. What a ship is according to the legislation has no description but what a ship is not is listed. Oil and gas drilling rigs are an exception to this tax deduction as the following listed below are counted as not being included in the tax break:

  • Floating and fixed production platforms
  • mobile offshore drilling units
  • flotels.

Benefiting from the zero tax bill is great for all employees that meet the standards listed above for what does not constitute a ship.

Sadly oil rig workers do not qualify for seafarers earning deduction under HMRC rules. Image: Pacific Standard

When it comes to how much time you can spend at home in the UK you are limited to no more than 183 days per tax year. If you spend more then that amount of time you will go through what is known as a Failure which will alter your ability to take advantage of the Seafarers Earnings Deduction. When it comes to travel days they are counted if you were in the UK at midnight of that particular day.

Another rule that must be fulfilled is that you must embark and disembark from foreign ports. Entering a port or leaving a port from the UK is invalid. Also, you have to spend a minimum of 365 consecutive days outside of the United Kingdom to qualify as a seafarer. As mentioned earlier if you spend above 183 days in the UK or make any other mistakes you will be given a Failure which change your eligibility for receiving the tax deduction. Many seafarers do not understand all the different elements of this tax law and either doesn’t take advantage of it or use it incorrectly. Sometimes an individual that is employed as a seafarer will not declare all of their income.

When you do your tax return it is important that everything is declared. You can declare all of your investments and have your taxes paid back to you except for rental income. It makes a lot of sense to do your tax return properly as you are guaranteed to benefit under the special tax discount. It is good to hang on to receipts including airline vouchers, ship discharge papers, hotel receipts, food receipts, and other paperwork to be reimbursed for your expenses.

Recently with the Open Exchange of Information, you should declare all of your offshore income and have it not be subject to taxes. It is very important, to be honest as the government has ways of finding out tax fraud and it is not worth the risk or consequences. After all, if you do not declare your income on your taxes there is not very much you can do with your money.

After the 18 years of battling between the HMRC and unions, the Seafarers earnings deduction is a great benefit that every UK resident who is employed as a Seafarer on a ship should take advantage of. If you work on an oil or gas drilling offshore rig you will not be able to use this specialized tax exemption. Also those UK citizens who are employed by the military also are exempt from taking advantage of the Seafarers Earnings Deductions. In the future these laws may change but for now these are the basic outlines and guidelines to tell if you qualify for this tax break.

External Sources

This article was created using reference material from the following websites:

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