The Seafarers Earnings Deduction (SED) is a unique piece of UK tax legislation that allows seafarers to claim a 100 per cent tax exemption on their foreign earnings or a full refund of income tax deducted at source where the seafarer is paid under a UK PAYE scheme.

More recently it has been extended to include EU seafarers, resident in EU countries but employed under a UK PAYE scheme.

It took nearly 15 years for HMRC to write into law this tax legislation which was hard fought for, yet it still seems that few people actually use it.

The reason that al lot of seafarers crew do not claim this exemption in part is because it is difficult to understand. The HMRC published information on the SED is presented in a way that makes it almost impossible for the lay-person to comprehend.

The most straightforward aspect of it is regarding what type of vessels do not qualify as ships (below is a short list). The main requirement of the SED is that you must work on a ship.

  • Fixed Production Platforms
  • Floating Production Platforms
  • Mobile Offshore Drilling Units
  • Flotels

There are those individuals who choose to do nothing at all or the more proactive who opt to set up limited companies on shore or offshore, in countries that have slightly more comfortable tax regimes. Those who choose to do nothing are at risk becoming subject to investigation when, in actual fact, there is no real reason for them not to make declarations.

The most common reason why individuals do not use this tax exemption seems to be the issue of days spent in the UK. Those who have an understanding of how this works are aware that you may not spend more than 183 days per tax year in the UK. It seems that crew panic when it comes to accounting for these days and decide not to be proactive with their tax affairs as they may not have the ticket stubs as proof of being out of the UK. Travel days seem to only add to the confusion, but the governing rule with these is that if you were in the country at midnight on the given day it counts as a day. We advise clients to be honest with the number of days that they have spent in the UK but always round up.

The HMRC Helpsheet 205 for the SED looks in detail at qualifying periods at sea. They must include a foreign port, so you cannot embark and disembark from the UK. In addition, they are judged on the number of days outside of the UK. HMRC has created a spreadsheet to try to help calculate if the number of days you have spent out of the country is sufficient to qualify. However, this often prevents people from using it as it is very difficult to understand. In this instance it is best to simply speak to an accountant.

I believe that if HMRC were to make this tax exemption more understandable then more people would use it. Furthermore, even those who do use it do not always use it correctly. We find that sometimes individuals fail to declare all of their income. It is essential that when you complete a tax return that you declare everything that you earn or receive a return on. If you choose not to declare certain investments you run a terrible risk of them being discovered later on and receiving penalties. This facility enables you to declare all income derived from investments except rent and receive tax back. Why not declare it?

This exemption is likely to be around for the foreseeable future after an 18 year battle to get it into law so it is unlikely that HMRC will be looking to make any changes quite yet.

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