The existence of this deduction is known throughout the Marine industries. It is a magic way to obtain total exemption from tax on your earnings as a seafarer if your job entails working outside the UK. Every ship has it’s experts on the mythology surrounding the rules to qualify, but HMRC rules are precise and complicated, and are set out in the Taxes Acts.
You need advice from experts before you make a claim to this deduction – a difference of one day in or out of the UK can make or break your entitlement to exemption from £1000’s of tax liability. You can avoid this and take advantage of our planning service. What’s more, HMRC are aware that many seafarer claims to S.E.D. are incorrect and these false claims can result in penalties, surcharges and interest being charged on the tax involved. You do not want to be in this situation!
The Rules (briefly)
- S.E.D. can only be claimed by seafarers who are Employed not Self-Employed
- S.E.D. is allowed against earnings as a seafarer which fall in a Eligible Period (EP) and includes leave pay immediately following a EP
- The EP must be 365 days or more and must not contain more than 183 consecutive days in the UK. At the end of each period outside the UK, the total of days spent in the UK must be less than ½ the total days in the EP (known as the “1/2 rule”). The EP must start and end with a day outside the UK. The EP can be extended indefinitely as long as the rules are not broken
- In each tax year, there must be at least one Foreign Port Visit for each employment – a fixed oil installation outside UK waters is treated as a “foreign port”
- A day of absence from the UK is one where you are outside the UK at the end of it (i.e. midnight) – holidays etc, abroad count
Facts and Fairy Tales
Here are a few examples which will probably sound familiar – there are many more!
FAIRY TALE: You must be outside the UK on the 5th April each year
FACT: There is no such requirement
FAIRY TALE: As long as you have more days out of the UK than days in, and more than 365 days, you have a EP.
FACT: The mathematical application of the ½ rule often breaks the EP under these circumstances.
FAIRY TALE: Seafarers who work abroad, get paid gross by a foreign employer, and qualify for the S.E.D. don’t have to do anything.
FACT: They have a legal obligation to declare their untaxed earnings in a Self Assessment Tax Return, in which they must claim the S.E.D.
Further Complications
HMRC may require you to produce documentary evidence to verify dates of all arrivals in and departures from the UK, also evidence of voyages, holidays or other periods spent abroad. This could include your Seaman’s Discharge Book (or Certificates of Discharge) flight/ferry tickets, copies of ships logs, hotel bills, credit card vouchers etc. etc.
“Ship” is not defined in Tax Law, but “offshore installations” which are not ships include: –
- Fixed and floating production platforms
- Floating storage units
- Floating production storage and offloading vessels (FPSO’s)
- Mobile offshore drilling units (including drill-ships)
- Flotels
HMRC’s new guidelines published February 2009, go further to include those vessels that are being put to a ‘relevant use’ and at the same time are ‘standing or stationed’.
- ‘Relevant Use’ – The exploration or exploitation of mineral resources by means of a well; storage or recovery of gas; conveyance of things by means of a pipe; worker accommodation.
- ‘Standing or Stationed’ – A vessel which is anchored or stationed using dynamic positioning, for more than 5 days.