Seafarers Earnings Deduction: Tax Relief for Ship Workers

Understanding UK Tax Laws Governing Offshore Employees

Back in history, all British seafarers have always been under the privilege of special tax rules that have dictated the tax rates they pay and this has been common for many decades. In many cases a seafarer is out of the country for extremely large amounts of time and has to endure a competitive labour market as well.

Also, the British government has an actual requirement for a certain percentage of seafarers for strategic defense of the country. Within this aticle, we will discuss how the laws have changed and how they affect modern day seafarers and the discounts and tax rates that are applicable to this type of employment.

Superyacht employees commonly use the SED as a means to avoid paying income tax. Image: Robb Report

For a very long period of time, all seafarers were covered by income tax deductions who worked overseas for a large amount of time during the tax year. However, this changed in 1984 when the British government made changes that were actually ridiculed and condemned by the shipping industry.

This outrage eventually led to what was known as the 1988 Finance Act. Because of all the lobbying by ship owners and maritime organisations, this act allowed a larger percentage of seafarers 100% tax deductions but unfortunately, this was not to last very long and we will explain why below.

Iraq invaded Kuwait just three years later after the above tax was put into motion. Because of the war, the UK had problems in getting enough ships and seafarers available to transport military equipment to the Gulf. This made another impact on how the laws changed with what is known as the 1991 Finance Act which brought more benefits regarding the tax regulations and how they affected UK seafarers.

Essentially what happened was that seafarers had their available time extended to 183 days inland in the UK per taxable year. This has become the modern day rule for all seafarers as long as they work on a ship and not any offshore drilling rigs or related gas and oil drilling employment.

The Inland Revenue created the 1998 Finance Act which clearly outlined the definition of what defines a ship, a seafarer and an offshore installation for tax purposes. To be eligible for these tax deductions the ruling excluded employment with such common things in the oil and gas industries like, production platforms that are fixed, floating production platforms, mobile offshore drilling units as well as flotels.

If you are employed on one of these types of installations then you are not considered as a seafarer and would not be eligible for Seafarers Earnings Deduction.

To be eligible, you must also be a British citizen or resident tax payer. Rules such as this do not apply to foreign nationals like US citizens, who have their own foreign earned incomes exclusions applied under IRS rules. So if you are a Brit who is moving to America from Great Britain, then you need to clarify your tax status with the IRS or a qualified tax specialist in the US.

What does HMRC consider as a “ship” for tax purposes?

We have included the list of conditions that meet satisfaction for the Seafarers tax deduction:

  • vessels that do heavy-lifting
  • diving support vessels
  • shuttle tankers
  • well service vessels
  • dredgers
  • survey vessels as well as pipe-laying barges

Interestingly enough, these new rules were challenged in an Appeal Court case in 2001 however it failed to change things as the Seafarers tax deduction is not available for anyone who receives employment on a rig, which are not actually considered as ships.

Oil rig employees do not quality under SED tax rules. Image: Dentons

However, in search of clarity and fairness a campaign continued throughout the decade. Later in 2009, HMRC issued new guidance which showed who was actually entitled to the SED and which years the financial claims would be covered by people who believed they that had been refused the specialized tax deduction.

Later in May of 2012, Nautilus won a legal suit with the HMRC over the regulations and rules for actually claiming the Seafarers income tax deductions. In a test case, a High Court judge sided on the Unions argument that employees who had worked on two ferries had a reasonable expectation to be entitled to the Seafarers Earnings Deduction.

Nowadays the SED no longer campaigns in the UK in the same fashion but rather campaigns to have SED extended to all seafarer employees not just to seafarers who are away for 183 days per year. The Nautilus union still campaigns on this special issue across Europe and calls upon member states to take advantage of the State Aid guidelines that govern the tax deductions who are employed as seafarers.

Ultimately the Nautilus union advises that people who are employed on ships who need advice or guidance to request more information for further details. Ultimately if you work on a rig or any offshore installation you will not be entitled to the Seafarers tax deductions. If you work on a ship however you are able to benefit from the deduction.

External Sources

This article was drafted using various reference material including but not limited to links, text and images from the following third party sites: