Seafarers Earnings Deduction: HMRC’s Tax Free Salary Loophole

Pay No Income Tax If You Work on a Ship

When it comes to those who work out at sea they may be capable of taking advantage of a unique piece of tax law that allows a 100% tax refund but only if you the rules are applicable to you. Known as the Seafarers Earnings Deduction (SED) it allows those United Kingdom citizens employed in the seafaring industry an opportunity to claim complete tax exemption on all foreign earned monies. It took over 15 years of legal battles between the HMRC and trade unions but a final agreement was settled in 2012 that calls for this great tax break. The trade unions continue to battle over the scope of this tax exemption to include those that work in the military in foreign waters. Since 1988 this law came into existence with its final update being in 2012. Unfortunately, many people who qualify for this exemption do not actually use it and fail to reap the rewards. Be sure to continue reading below as we outline the Seafarers Earnings Deduction and explain the rules to show you whether or not you can apply for this unique tax law.

The reason for the SED coming into law had a few important reasons. To begin with, seafarers spend a majority of their time outside of the United Kingdom, also because of the fierce competition in the seafaring industry and also to play a much-needed role in the defence needs of the United Kingdom. This interesting tax deduction was created to fulfil these roles and make up for pressures associated with globalisation and competitive job markets in the seafaring industry. Although this tax exemption was created for those employed as seafarers many UK citizens do not take advantage of this law. Many people have problems understanding the almost unintelligible information. It is hard to find the actual rules but we have taken a look at the HMRC Help Sheet 205. It is the only official piece of paper on what constitutes a seafarer and whether or not they can claim the tax deduction.

Many seafarers are subject to hard working conditions. Image credit: Vessel Finder

All it states is that you must work on a ship. Now what is not classified as a ship has been listed as the following classifications of ships. This new rule was put into place as of 1998. If you are working on of these vessels the SED will not apply to you. This includes fixed and floating production platforms, mobile offshore drilling units as well as flotels.

Claiming SED is Better Than Ignoring this Tax-Free Opportunity

Many people in the seafaring industry believe the misinformation and myths that this exemption is not a real thing. Of these people, some will decide not to claim their income on their taxes. The other group of people will typically decide to set up limited companies ashore and in other countries to pay fewer taxes. Honestly not filing your taxes or using this 100% tax exemption is a mistake as you can be greatly rewarded without having to pay tax.

Other seafaring individuals won’t take advantage of this exemption because they do not understand the requirements of days spent in the United Kingdom. If you understand how the exemption works you will understand that you may not spend more then a 183 days per tax year in the UK. Travel days make this seem more confusing but a day in the UK is
calculated by whether or not if you were in the country as of midnight of that particular day. Any day spent in the UK will count towards the 183 days you are allowed ashore per year to use this tax exemption. Be honest and be sure
to keep records and statements that prove your time spent ashore.

The Seafarers Earnings Deduction is a great piece of tax law and is a great alternative to the Offshore Disclosures Facility because it enables you to declare all of your earned offshore income without having to pay a tax. Declaring your income honestly is important because of the Open Exchange Of Information, the government can keep tabs on you.

If you choose not to declare your income there is very little you can do with it. If you ever want to get a mortgage or a loan you will have to prove your income to all lenders who now require a SA302 letter. You can only get one if you file your taxes.

Despite myths and rumours, it appears that the Seafarers Earnings Deduction will be an applicable tax exemption for many years to come. If these rules apply to you then, by all means, save with this excellent piece of law for seafarers.

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