Seafarers Earnings Deduction: Use It or Lose It!

Earn Tax-Free Income if You Work Offshore

Are you a United Kingdom citizen that happens to work on a ship in foreign waters or employed in an offshore based position? If you answered yes, this special piece of information will share with you a well-kept secret among the HMRC which is a piece of tax legislation that is an exemption that allows you to keep 100% of all your earnings. Many people who are employed offshore in foreign waters do not actually know about the rules and full details of what is known as the Seafarers Earnings Deduction. What it is, is a tax law that allows you to claim a complete tax exemption all earned income outside of the UK in foreign waters. The HMRC created this tax exemption after 18 years of intensive legal battle with trade unions. The final version of this agreement came to the way it is today as of 2012. Now be warned, not all seafaring employed people are able to take advantage of this exemption. The HMRC is well known for being tangled up with different rules, as well as regulations and definitions of what is defined as a seafarer and whether or not he or she can take advantage of the tax exemption.

Many offshore workers are employed aboard super yachts. Image credit: Money Inc.

The Seafarers Earnings Deduction was first passed into legislation way back in time during the 1988 Finance Act. Since then it has been adjusted and improved and the rules and different regulations have changed how this law applies. In fact, the most recent update of this law was back in 2012 and we will discuss the different details and information you need to know. The Seafarers Earnings Deduction was first built to help workers deal with the very competitive and demanding work in the seafaring industry as well as to provide a solution for the defence needs of the national security for the UK. The tax exemption was created to make working offshore in foreign waters more financially beneficial for UK citizens and to help with the globalisation and demands of the labour market. Those who work offshore including on yachts typically do not completely understand the rules of the HMRC because of the confusion behind Help Sheet 205. Reading this piece of paper is like reading a foreign language but we have outlined what is allowed for seafarers to claim this specialised tax exemption.

The HMRC has provided very few details on what exactly is the definition and qualities of a person who is defined as a Seafarer. However what they do mention on the help sheet is that you must work on a ship. Now what exactly defines a ship is varied. The HMRC never outlined what a ship actually is but what they did do is outline what is not considered a ship. You are not capable of using the Seafarers Earnings Deduction if you work on the following which is defined as not ships: flotels, fixed production and floating platforms and mobile offshore drilling and fixed production units. If you are employed on of these listed vessels that unfortunately you will not be able to take advantage of the Seafarers Earnings Deduction.

Since there is a lot of misinformation when it comes to the Seafarers Earnings Deduction many people who work in foreign waters will do two possible things instead of taking advantage of this tax exemption. The very first class of worker will not declare their income or file their taxes which is a gigantic mistake. The UK government has what is known as an Open Information System. If you don’t declare your income they can catch you and penalise you heavily.

Other individuals who do not take advantage of the SED may choose to set up limited companies either in the UK or in different countries in order to pay less in taxes. If you meet the requirements of the SED then, by all means, take advantage of it because you cannot beat not having to pay taxes on your earned income.

Some other seafaring employees will choose not to file their taxes properly because they may not understand the allowed time in the UK per year. Under the Seafarers Earnings Deduction, you are allowed to spend a maximum of a 183 days per tax year in the UK. If you are in the country as of midnight of any given day then it counts as a day inside the UK ashore. Be sure to keep all records and statements that show how much time you have spent in the UK. It is important to keep a record of these receipts and keep them. You may be called upon in the future to display these records so hang on to them.

The Seafaring Earnings Deduction is a great tax exemption. If it applies to you then use it!


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