Seafarers play a crucial role in the global economy, spending extended periods at sea and often away from home. For UK seafarers, the Seafarers Earnings Deduction (SED) is an essential tax relief that can significantly reduce their tax liabilities.
In this article, we’ll be explaining all you need to know about SED, including its benefits, eligibility criteria, and how to claim it.
What is Seafarers Earnings Deduction?
The Seafarers Earnings Deduction (SED) is a UK tax relief designed specifically for seafarers. It allows qualifying seafarers to claim 100% exemption on their foreign earnings, provided certain conditions are met. This legislation was established to acknowledge the unique challenges seafarers face, including long periods away from home and the competitive nature of their employment.
Introduced after extensive negotiations between trade unions and HMRC, the SED aims to offer financial relief to seafarers, ensuring their offshore earnings are not subject to UK income tax.
Despite being in effect for several years, many eligible seafarers are still unaware of this beneficial tax relief.
Qualifying for Seafarers Earnings Deduction
To benefit from the Seafarers Earnings Deduction, seafarers must meet specific eligibility criteria. These criteria ensure that the relief is appropriately applied to those who genuinely work at sea and spend significant time outside the UK.
Criteria for Eligibility
- Spending at least 183 days outside the UK in a 365-day period: Seafarers must spend a minimum of 183 days outside the UK within a 365-day period to qualify for SED.
- Employment onboard a “ship”: The employment must be onboard a vessel that can navigate and operate under its own power.
- Visiting at least one foreign port during each employment period in the tax year: Each employment period must include a visit to a foreign port.
Establishing a Qualifying Period
To establish a qualifying period, seafarers need to spend 183 days outside the UK within a 365-day period. This can include non-work days, as long as they are spent outside the UK. Additionally, seafarers must be outside the UK at midnight on day 365 to meet the requirement.
What is the “Half-Day Rule”
The “half-day rule” is important in maintaining eligibility. It states that seafarers must spend more than half of their time outside the UK since starting their overseas employment. This rule ensures that their time spent in the UK does not exceed half of the total days from the beginning of their overseas work.
Employment Onboard a Ship
For the purposes of SED, a “ship” refers to any vessel that can navigate and manoeuvre independently. This includes a wide range of vessels but excludes offshore installations used in the oil and gas industry, such as:
- Fixed production platforms
- Floating production platforms
- Floating storage units
- Floating production storage and offloading vessels (FPSOs)
- Mobile offshore drilling units (drill ships, semi-submersible, and jack-ups)
- Flotels
Seafarers working on these offshore installations do not qualify for the SED, as they are not considered to be employed on a “ship.”
Valid Foreign Port Call
To claim the Seafarers Earnings Deduction, seafarers must complete at least one trip that either begins or ends at a foreign port. This ensures that their employment includes international voyages, reinforcing their eligibility for the tax relief.
Examples of Qualifying Voyages and Operations
- Completing a voyage that starts or ends outside the UK.
- Conducting operations such as replenishment at sea outside UK territorial waters.
- Travelling to a foreign port or a rig located outside UK territorial limits.
Seafarers Tax Exemption UK
UK seafarers who qualify for the Seafarers Earnings Deduction (SED) can enjoy significant tax relief on their foreign earnings. This exemption acknowledges the unique working conditions of seafarers, who spend extended periods away from the UK. The SED allows qualifying seafarers to claim back 100% of the UK income tax paid on their seafaring income, provided they meet the necessary criteria.
Distinction Between Land-Based Income and Seafarer Income
It’s important to understand that the SED applies only to income earned while working onboard a ship and during qualifying periods outside the UK. Land-based income, such as earnings from a part-time job in the UK, remains taxable. However, seafarers can still take advantage of the personal tax allowance, which is £12,570 for the 2023/2024 tax year, to reduce their taxable income.
How to Claim Seafarers Earnings Deduction
Filing a Seafarers Tax Return
- Register for Self-Assessment: If you haven’t filed a UK tax return before, the first step is to register for self-assessment with HMRC. This involves obtaining a Unique Taxpayer Reference (UTR) number.
- Gather Required Documentation: Collect all necessary documentation, including evidence of your qualifying period, income, and time spent outside the UK.
- Complete the Tax Return: Fill out the self-assessment tax return, ensuring you accurately report your seafaring income and claim the SED.
- Submit the Return: Submit your completed tax return by the deadline, which is typically 31st January following the end of the tax year.
- Pay Any Due Tax: If there is any tax due after accounting for the SED, ensure it is paid by the deadline to avoid penalties.
Required Documentation and Evidence:
- Discharge book
- Flight stubs
- Payslips
- Seafarers Employment Agreements (SEA) or other employment contracts
- Bank statements
Process for Non-UK Residents to Claim SED:
Non-UK residents employed by UK companies can also claim the Seafarers Earnings Deduction. The process is slightly different and involves completing the R43M(SED) form.
Special Considerations and Forms (e.g., R43M(SED)):
- R43M(SED) Form: Non-resident seafarers must complete this form to claim back income tax. This can be done online or by post.
- Evidence of Time Outside the UK: Non-residents need to provide evidence such as ship logs, flight stubs, and other documentation to prove their qualifying period.
Documentation and Evidence for SED Claims
To substantiate your SED claim, it’s crucial to maintain thorough records. The following documents are particularly important:
- Discharge Book: Records of your time onboard a ship.
- Flight Stubs: Proof of travel outside the UK.
- Payslips: Evidence of your earnings.
- Employment Contracts: Details of your employment and duties.
- Bank Statements: Financial transactions that can support your claim.
Importance of Maintaining Thorough Records
Keeping detailed and accurate records is vital for a successful SED claim. In case HMRC requests evidence to verify your claim, having all necessary documents readily available will streamline the process and prevent delays.
Proving Absence from the UK
If you’re wondering how you can prove you were absent from the UK on certain dates, the below are acceptable forms of proof:
- Discharge Book: Official documentation of your time at sea.
- Flight Stubs: Tickets and boarding passes showing travel dates.
- Employment Contracts: Specific periods of employment onboard a ship.
- Payslips: Indicating periods of earnings that align with your time outside the UK.
- Captains Letters: Official letters confirming your duties and time onboard.
Challenges and Tips for Maintaining Accurate Records:
- Consistency: Ensure all your documents consistently reflect your time outside the UK.
- Regular Updates: Update your records regularly to avoid gaps or inconsistencies.
- Backup Copies: Keep both physical and digital copies of important documents.
- Professional Help: Consider consulting a tax professional to help maintain and organize your records efficiently.
Seafarers Earning Deduction FAQs
Can Non-UK residents claim SED?
Yes, non-UK residents can claim the Seafarers Earnings Deduction (SED) if they meet the eligibility criteria. Non-residents who work for UK companies and have UK tax deducted from their income can apply for a tax refund by claiming the SED.
They need to complete the R43M(SED) form, either online or by post, and provide evidence of their time spent outside the UK to support their claim.
Can I have another job in the UK and still claim SED?
Having another job in the UK does not disqualify you from claiming the Seafarers Earnings Deduction. However, the income earned from land-based jobs in the UK remains taxable and is not covered by the SED.
Seafarers must ensure they meet the SED criteria, including spending more than half of their time outside the UK. They can still claim the personal tax allowance on their UK earnings, which can reduce their overall tax liability.
Do Floating Productions Vessels Qualify for SED
Floating production vessels, such as Floating Production Storage and Offloading vessels (FPSOs), do not qualify as “ships” for the purposes of the Seafarers Earnings Deduction.
To be eligible for SED, a seafarer must work on a self-propelled vessel capable of navigating and manoeuvring independently. Fixed installations and certain offshore units are specifically excluded from SED eligibility.
Seafarers Tax Accountants
Navigating the complexities of the Seafarers Earnings Deduction can be challenging, which is why consulting with expert tax accountants, like our team at Ryans, is crucial. Our experienced professionals understand the intricacies of SED and can provide tailored advice to ensure you maximise your tax relief.
By working with Ryans, you can navigate the complexities of the Seafarers Earnings Deduction with confidence, knowing that your tax affairs are in expert hands.
Don’t delay, contact us today to make the complex clear.