Work Tax Free Offshore with HMRC’s SED Rules
We would like to introduce you to the Seafarers Earnings Deduction which is an interesting and unique piece of tax legislation that allows United Kingdom citizens employed as seafarers the opportunity to claim a 100% tax exemption on all foreign earned monies. This law came into effect after 15 years of legal battle between the HMRC and the seafaring trade unions of the UK. The current version of this law was settled as of 2012 and we will tell you about it. Trade unions are still trying to expand the scope of this tax law to also include members of the military. This law was first put together back in 1988 and to this day many people who could apply for this exemption do not use it. We will discuss the different details as well as the rules and regulations on how this piece of tax law works and how it can apply to you.
To begin with, the Seafarers Earnings Deduction was first put into action for a number of different and specific reasons. These include the fact that seafaring employees spend a majority of time outside of the United Kingdom, also the competition and global marketplace for seafaring jobs are incredibly competitive and this law was enacted to help with the defence needs of the UK. The United Kingdom needed more citizens in foreign waters and ports as a format for national defence. This law was designed to specifically help seafaring employees who live in the United Kingdom. Although this law is designed to help those employed at sea many people do not utilise it or use it at all. It is mainly because the Seafarers Earnings Deduction is hard to understand. You can gain information from the HMRC Helpsheet 205 and we have listed the results below.
In Help Sheet 205 it states that a person must work on a ship to qualify for this tax exemption. Now, what qualifies as a ship is not listed however what is not considered a ship is explained. If you work on the following vessels you will not be able to apply or use the Seafarers Earnings Deduction. If you work on the following this law does not apply to you, if you work on a flotel, fixed or floating production platform, or mobile offshore drilling unit. These are clearly described as not being ships and they do not count towards the regulations of what is listed under the Seafarers Earnings Deduction for employment.
Among seafarers, there is a lot of misinformation and myths surrounding this tax deduction. In the industry, there are typically two types of people and how they deal with their taxes. Some choose to not file their taxes and hope that they don’t get caught. Others will set up companies ashore or in foreign countries to pay fewer taxes. However, if you are capable of using this tax exemption then you should use it. Many people do not understand the rules. One of the rules consists that you may only spend a maximum of 183 days ashore in the UK. A day is counted by being in the UK as of midnight of that day. If you are in the United Kingdom on midnight of a given day it counts as a day. Be sure to keep paperwork, stubs, and receipts that prove your time ashore. If you go over the 183-day limit then the Seafarers Earnings Deduction will not be applicable to you.
When we look at the HMRC Help Sheet 205 it states that you must embark or disembark from a foreign port. If you embark or disembark from the UK then you will not be able to use this tax exemption. If the HMRC made this tax exemption more understandable I believe more seafaring employees would take advantage of it. The Seafarers Earnings Deduction is a great law that allows you to declare all of your offshore earnings without having to pay tax on it. Declaring your income is important because the government can use the Open Exchange of Information and find out all your information. If you decided upon not filing your taxes you would not be able to do much with your money such as getting a mortgage or taking out a loan. You would need a SA302 letter which can only be given to you when you file your taxes at the end of the year.
The Seafarers Earnings Deduction is a great tax exemption and it should be used if you find that the rules apply to you!
Contrary to the rumour mill, this piece of tax law will be around for many more years and should be used if it applies to you. The Seafarers Earnings Deduction is a well kept secret and a wonderful way to save your offshore earned income.
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