Understanding the HMRC’s Seafarer’s Earnings Deduction Rules

Earn tax free income at sea under HMRC’s SED exemption

Do you happen to be employed on a ship or offshore based profession and happen to be a citizen of the United Kingdom? If you answered yes this specialised article will share with you the highly important piece of tax legislation that lets you keep 100% of your earnings. Believe it or not, the HMRC has a program available known as The Seafarers Earnings Deduction.

It allows you to claim a complete tax exemption on all income earned in foreign waters. The HMRC created this tax legislation after 18 years of legal battle that created the final agreement as of the year 2012. Not all seafaring employees are entitled to this tax exemption and we aim to help you in understanding the Seafarers Earnings Deduction and if it applies to you.

The HMRC is known for being entangled with different rules, regulations, and definitions of what exactly a person employed as a seafarer is and whether or not he or she can use the exemption. Continue below as we try to remove any and all confusion and answer your potential concerns.

The beginning of the Seafarers Earnings Deduction first came into legislation during the 1988 Finance Act. It has since been adjusted and improved and the rules and regulations have changed. It has been updated as of 2012 and we will discuss the variables. To begin with, the Seafarers Earnings Deduction was created to help workers deal with the extremes of an incredibly fierce and competitive job market as well as providing a solution for the needs of national defence for the United Kingdom.

The tax exemption was designed to make working offshore more financially beneficial for UK citizens. Many people who work aboard ships including yachts do not completely understand the HMRC definition of what a seafarer is and how the exemption can apply to each individual. The HMRC provides resources in terms of information but truthfully it is like reading a foreign language which can and does prevent seafarers from claiming this deduction.

Working aboard a super-yacht means you can earn tax free wages. Image credit: FreeImages.com

To begin with, the HMRC has provided few details on who exactly qualifies as a Seafarer. What they do outline in their help sheet is that you must work on a ship. What their definition of a ship is varied however the HRMC has outlined what they do not outline as a ship. These include the following: flotels, mobile offshore drilling, and fixed production units, fixed production platforms as well as floating production platforms. If you work on one of these listed positions then the Seafarers Earnings Deduction will not apply to you, unfortunately.

Now some workers who are employed as Seafarers will typically do one of two things when it comes to filing taxes. The first type of employee will not declare anything which is a huge mistake. The government has an open information system set up. If you were to not declare your income you could get caught and penalised. Other individuals that are employed as a Seafarer may set up limited companies on shore or in other countries with less taxation. Ultimately if you meet the requirements of the Seafarers Earnings Deduction you have nothing to lose when you do not have to pay anything on your tax bill when it is time to fill your earnings for the year. This is a great benefit and should be utilised if it is available.

Sometimes people will not file their taxes properly because of the issued time you are allowed to spend in the UK. As a seafarer, you are allowed to spend no more than a 183 days per tax year inside the United Kingdom. You will need to be able to account for the days that you spent ashore. You will need to keep all paperwork and ticket stubs that provide the details and information outlining your time in the UK. If you are in the country as of midnight on a given day then it counts as a day. Be sure that you are honest with how many days you spent ashore and as we stated earlier be sure to have all records and paperwork that prove this.

As a Seafarer, you will have to disembark from a foreign port to be able to use this tax exemption. Your ability to  harness the tax exemption will also be determined by how many days that you spent outside of the United Kingdom working.

If the HMRC had made the law more understandable we believe that more people would use this specialised tax exemption. Not declaring your income is not a solution and will not provide you any benefits whether if the SED applies to you or not.


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