Tax, Payroll & Accountancy Services For Seafarers

Seafarers Earnings Deduction (SED) is a piece of tax legislation that exempts seafarers from paying income tax on overseas earnings. The seafarer can claim 100% tax relief on the amount they earn.

The law came into effect in 2012, following a fifteen-year battle between trade unions and HMRC. It was acknowledged that seafarers play a vital role in the defence needs of the UK and are in a very competitive market, so it was viewed right that they should receive a tax break. 

See more here.

The SED law applies mainly to those in the UK, so to qualify, you must first be someone who is not a tax resident outside of the UK and works onboard a ship outside of UK waters. The process can be confusing and complicated for many seafarers, but the standard criteria are as below: 

1. You work outside the UK, usually for 365 days – the qualifying period.
2. Each qualifying period has at least one voyage that begins and ends at a foreign port.
3. You work on a “ship or vessel”. 

Below is a brief list outlining the key eligibility criteria for claiming SED in three major steps:

1. A valid claim period
First, you must have worked outside the UK for 365 days before claiming SED. A period outside the UK can be due to employment, unemployment, or a holiday/vacation abroad. As soon as these 365 days have been attained and confirmed, it is carried on until a failure occurs.

2. A valid foreign port for each employment, each tax year
Each employment in each tax year must include at least one voyage or part voyage that begins or ends at a foreign port. A voyage (or part voyage) that begins or ends at an oil or gas installation outside the UK and the designated areas of the UK continental shelf can be regarded as beginning or ending at a foreign port.

3. The employment must be aboard a ship
A seafarer is, of course, someone that works on a ship. There is no actual, exact definition of a ship in tax law, but ‘offshore installations’ are specifically NOT regarded as ships.

Due to a great deal of abuse of the exemption by non-seafarers, an amendment came into effect in 1998 which meant that some vessels do not qualify for SED exemption including: Fixed Production Platforms, Floating Production Platforms, Mobile Offshore Drilling Units, and Flotels.

For a more thorough breakdown of these criteria, please read our article here. 

Under typical circumstances, HMRC defines being outside of the UK as being beyond a 12-mile radius from UK shores.
However, HMRC will accept that a vessel leaving its UK berth before midnight and going to a foreign port is seen as a day out.

If a vessel was to sail from a UK port to another in the UK, it is only when it is outside of the 12-mile limit at midnight that it is regarded as outside of the UK.

In 2011, the EU ruled that anyone who resides in a country in the European Union, or the European Economic Area (EEA), is entitled to claim Seafarers Earnings Deduction in the same way as a UK resident. There needs to be a foreign port reached each year and you must have spent sufficient time out of the UK. You should not encounter any issues if you meet this criteria. 

Something that should also be considered, is that HMRC will ask for evidence of any periods of absence from the United Kingdom. You must retain certain receipts such as your flight tickets, any other travel receipts, passport, and visas (where applicable) to prove your return to your home country during your leave, and the evidence of being away aboard.

As a UK resident with 365 days of qualifying work on a ship, the next thing to do after recognising that you can qualify is register for your self-assessment tax return. If you are sure you will spend over 365 days outside the UK, we recommend registering for your self-assessment before you go. There is some paperwork HMRC need to send you and for you to sign and reply.

Remember that it is much easier to organise this at home in the UK rather than on a ship.

If you are an EEA resident, there is a form called R43M (SED) that you can find online. Fill out everything correctly and submit it directly to HMRC. 

To claim your Seafarers Earnings Deduction, you will need a combination of the following: 

a. Air tickets or travel vouchers.
b. A filled-out Working Sheet (form HS205).
c. Copies of hotel bills or receipts.
d. Your current passport and any visa(s).
e. The freeboard logs for your ship(s).
f. Your seafarers discharge book.

The deadline for filing your tax return falls on the 31st of January in the year following the previous 5th of April (within the same tax year). 

This gives you nine months to complete and submit the return. In order to guarantee your return is submitted on time, it is advised that you send all the details for your return by mid-December. 

Yes, you do. Although, several factors influence your National Insurance (NI) contributions.

Your legal residence or domicile and the registration location of your vessel will be taken into consideration. Additionally, the geographical area(s) of your work, your employer’s location, and the nature of your job play a role. Regarding the vessel, it’s crucial to account for the owner / managing owner’s location. Whether you work within or outside UK waters is another vital aspect. Lastly, any international agreements between the United Kingdom and other countries will be assessed.

If you were to start college or university, claiming the SED on those earnings would be impossible as you are classed as ‘not performing the duties of your employment on a vessel’. 

It may be possible to maintain an ongoing claim by taking holidays abroad at the appropriate time whilst you are at college, but this does not change the fact that the allowance cannot be claimed. Individual circumstances can vary, so it is always best to contact those of authority to determine how college attendance will affect your tax liability and other formalities regarding everything SED-related.

One may receive tax relief on your contribution in three different ways. They are as follows: 

a. Your employer deducts your contributions from your pay before they calculate the tax due from your pay. It then means that you receive tax relief at the highest rate of tax that you pay. This is called a ‘net pay arrangement’. You can find out if you are in one of these schemes by asking the scheme administrator or looking at the booklet.

b. Your employer takes your contribution from your net pay and pays this to your pension provider on your behalf. This is likely to happen if you are a member of a group personal pension, group self-invested personal pension or group stakeholder pension scheme. However, it could also apply to other types of personal pension schemes – this is called ‘relief at source’. The pension provider then claims back the introductory rate from HMRC and adds this to your pot.

c. If you are paying pension contributions through a ‘salary sacrifice’; arrangement agreed with your employer. This is treated as an employer contribution, with the same effect for you as receiving tax relief but also with a saving on NI contributions.

Floating production vessels do NOT qualify for Seafarers Earnings Deduction. Fixed installations such as FPSOs, FSUs, or Flotels are not appropriate vessels.

When a ship is in a dry dock, there are some instances where HMRC may not categorise it as a ship for tax purposes.

While a dry docking vessel can still be considered a ship, if its hull is breached, HMRC’s stance is that it no longer qualifies as a ship. This is because it’s deemed ‘not capable of being used in navigation’.

So, it is crucial to inform HMRC if your current ship operates under these circumstances to ensure that your claim remains unaffected.

HMRC’s perspective hinges on the idea that when standing by a new build, you aren’t fully engaged in ‘performing the duties of your employment onboard a vessel’. A new build does not become a vessel, or at least considered so, until the date of its first sea trials.

At that point, HMRC will consider that the vessel is ‘capable of and used in navigation’, so the seafaring allowance can only be claimed from then on.

There is no limit on how many holidays or days away one can have concerning their seafaring claim.

All that matters is the number of days spent outside of the UK, whether these days are for work or vacation makes no difference; HMRC does not concern itself with such minor formalities.

No, this will not affect your claim.

Your claim is determined solely by the dates of your entry and exit from the United Kingdom. A second job does not in any way, shape, or form, affect the claim you make.

There will need to be a declaration of the second income on your tax return, as this can affect your overall tax liability. Remember that the allowance does not extend to any other income, in any tax year, where you clear your liability due to a seafaring claim. It can mean your allowances may be offset against other forms of income, which can also lead to a refund of a portion of that income tax. 

No, it does not.

When those in charge look to settle your taxes for a year in which your seafaring claim has ended, they will look to claim the allowance for the period of voyage leave taken immediately following a successful claim. However, those leave days will not be used in calculating your claim. 

One’s seafaring claim is determined solely by their dates of entering and leaving the United Kingdom. 

The tax office does not give a precise definition of what is required to ultimately prove one’s holiday abroad. Therefore, the process can seem unclear and complex for many claimants.

Providing at least a travel ticket from your airline or ferry for example, is best to prove that you have indeed travelled. It also helps to show statements proving that you have made transactions outside of the UK. Giving concrete evidence indicates that you were away on the dates you gave, and the more proof you provide the better.

The amount of evidence needed is substantial to ensure the credibility of claims. Given the potential for fraudulent claims, a thorough process is required to detect any illegitimate behaviour. People have been caught claiming to have spent time abroad when they travelled back on the correct dates but did not stay out of the UK for the entire period. Others have also been caught lying completely and not travelling at all.

The anniversary date plays absolutely no part in your seafaring claim. It is not part of the rules for qualifying and never has been, so that is not something you need to look into too seriously.

The only information in terms of relevance that you might wish to consider is that a new claim has to extend over a minimum of one year.

According to HMRC, for tax purposes a ship ceases to be deemed a ship on the day that it docks for conversion into an FPSO (Floating Production Storage and Offloading) vessel.

Even if the FPSO then sails halfway around the world to a permanent location, it is not regarded as a ship for SED purposes. The point here is that, to be considered a qualifying vessel, it is necessary to consider its function and abilities. Despite its capacity and power to sail great distances across the globe, HMRC do not consider an FPSO as a ship because it operates solely as an FPSO.

As mentioned in previous points, there is a discussion to be had and HMRC are often open to a healthy debate and challenge. It is just a case of opening up a long-term dispute with costly charges.

The answer is yes! Marine’s Tax Department uses Futurelink Accountancy Services to run a Seafarers Tax Service for all UK crew.

HMRC does not make it a straightforward process for you to claim Seafarers Earnings Deduction. Failing to file your tax return or not completing it accurately could have serious repercussions. Instead of paying nothing, you may be liable for the full income tax on your earnings, with the potential to incur additional fines.

Get in touch with us today and we can complete your tax return and ensure it is done correctly so you pay no income tax, saving you money, time and stress.