The Dangers of Seafarers’ Earnings Deduction
Seafarers’ Earnings Deduction (SED) is a valuable UK tax relief for those working at sea. However SED has an important (and less well-known) restriction which claimants should also understand as it could leave them worse off by potentially thousands of pounds.
Seafarers’ Earnings Deduction (SED)
SED can reduce the tax payable by UK or EEA resident seafarers who work aboard a ship. The relief isn’t available to Crown employees or non-UK/EEA residents.
In order to claim the relief, a seafarer must have worked on a ship and spent a certain amount of time (known as an “eligible period”) outside the UK.
Certain vessels and fixed installations aren’t treated as “ships” (e.g. oil rigs), therefore those working in these environments will not be eligible for SED.
HMRC’s help sheet “HS205 Seafarers’ Earnings Deduction” is available to help seafarers determine if they have an eligible period outside the UK.
Care should be taken when identifying UK and Non-UK days in an eligible period because the identification process is different to the Statutory Residence Test.
Restriction for UK Duties
Importantly, the SED rules impose a restriction on the maximum amount of relief available based on the amount of UK duties performed during an eligible period.
“UK duties” in this context means duties performed on a voyage which begins and ends in a UK port.
This means duties performed outside the UK’s 12-mile limit or outside the UK’s territorial waters could still be UK duties if the voyage starts and ends in the UK.
Unfortunately HMRC’s help sheet doesn’t signpost this restriction and there’s limited references to the restriction in HMRC’s own manuals.
Omitting this restriction could leave seafarers exposed to potentially thousands of pounds of tax depending on their income and the amount of UK duties they’ve performed.
What Can I Take Away?
Those looking to claim SED need to careful identify both their own eligible periods and also the movements of the vessels they work on to ensure they’re claiming the correct amount of SED.
If you need any advice about SED or claiming SED yourself, please contact a member of our team today.