Seafarers Earning Deduction: Do You Qualify for this Exemption?

Earn Tax Free Income If You Work At Sea

A great piece of legislation offered for seafaring United Kingdom employees came into effect as of the 1988 Finance Act that is not very well known but is an excellent tax exemption for those who qualify. As of 2012, this piece of legislation became a 100% tax exemption for those employed in foreign waters around the world. Many people who would be entitled to this great tax break do not know it or do not use it because it is not that very well known and the HMRC is incredibly vague. We will dedicate ourselves to helping you understand the Seafarers Earnings Deduction and whether or not you can benefit from it.

A long battle has occurred over 18 years between seafaring unions and the HMRC since the 1988 Finance Act was introduced that allows certain United Kingdom citizens who work in the seafaring industry to keep 100% of their earned income but only if they meet certain criteria. This piece of legislation was put together in 1988 and only got to its current incarnation as of the 2012 Finance Act. Within this article, we intend to dive into the full details of the rules and regulations that govern the Seafarers Earning Deduction. It is an excellent resource for citizens of the UK who are employed on ships that embark and disembark in foreign countries. If you qualify for this tax exemption you will be able to keep all of your earnings. Not all seafarers are eligible for this tax deduction. We aim to educate and inform you within this article because the HMRC has kept this tax exemption elusive and secretive and we have decided it is time to shed light on this topic. Continue reading below to find out if you qualify and all the different intricacies that make this a valuable tax exemption.

Magnifying Glass Looking at Wallet Full of Money
Seafarers can now see their savings grow after paying no income taxes. Image credit: Pixabay

First of all, as we stated briefly the HMRC does not provide much information about this tax law. The details they do provide is hard to understand and apply. To begin with, the Seafarers Earnings Deduction was created to help those employed in the seafaring industry to deal with the competitive global marketplace. This tax exemption was also created to provide a solution for the national defence needs of the The UK in foreign waters. Although national defence is one of the reasons for this tax break, unfortunately, those employed in the military that spend time in foreign waters are not able to take advantage of this exemption.

When one reads through the HMRC 205 Helpsheet it seems to be written in a foreign language that does not provide a lot of detail or information. What it does contain are certain rules that you must follow to qualify. The very first rule mentions that you must work on a ship. What qualifies as a ship is not explained however what a ship is not has been listed as follows, floating and fixed production platforms, mobile offshore drilling units, and flotels are not considered ships. If you work on one of these then, unfortunately, you will not be able to use
the SED.

Some individuals will choose not to file their offshore earnings and may face penalties as well as investigation. As for other people they may choose to be more proactive and set up a limited company ashore or companies in foreign countries for tax reasons. If you choose to avoid filing your taxes you will suffer. It is worth harnessing the Seafarers Earnings Deduction if you are able. You really do not suffer when you don’t have to pay anything on your tax bill.

There are a few more requirements that you must adhere to in order to take advantage of this tax exemption. This includes that you spend no longer than 183 days in the United Kingdom within a given tax year. You will be required to have documentation and stubs that show how many days you spent ashore. A day ashore is considered when you are in the UK as of midnight that day that counts as a day ashore. You will need to have documentation in case you are investigated. Another rule is that you must embark or disembark from foreign ports. If you were to embark or disembark on your journey within the United Kingdom then you would not be able to take advantage of the Seafarers Earnings Deduction. You will also have to spend a certain amount of time outside of the United Kingdom to qualify. You can use Helpsheet 205 from the HMRC to get further details.

It is incredibly important that you file your annual tax return as you can declare all of your earned monies without having to pay taxes. If the HMRC would make this tax exemption more understandable then maybe more seafaring employees would take advantage of it. Filing your taxes is integral as the Open Exchange of Information can easily investigate you and penalise you. Without paying taxes you will not be able to do anything with your earned income including acquiring loans or mortgages. The Seafarers Earnings Deduction is a great tool for those that meet the criteria and should be harnessed by seafaring UK citizens.

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