UK Tax legislation for seafarers’ earnings

Michael Garner looks at the Seafarer’s Earnings Deduction for UK mariners and reminds us that it really is not that complicated, but a very necessary step for UK crew to take

We understand tax isn’t your priority while working aboard these luxurious vessels, let’s face it, tax isn’t interesting at all! I would, however, like to try and explain the most common misconceptions and explain some of the questions we are regularly asked.

As a seafarer you have access to a unique piece of UK tax legislation, it must be one of the best tax relief systems in the UK but, to qualify, the criteria are quite strict. The Seafarer’s Earnings Deduction (SED) is an area of UK tax legislation that allows seafarers the right to claim up to 100% tax exemption on their earnings.

Seafarers’ Earnings Deduction in brief
First and foremost, you must have:
• worked on a ship
• worked outside the UK long enough to qualify for the deduction – the claim period must be a minimum of 365 days
• a UK National Insurance number

You can’t get the deduction if you are not a UK resident.

We very often come across seafarers who are aware of the legislation yet believe that, because they do not pay tax at source, there’s no need to file a tax return because they fulfil the SED criteria anyway. Irrespective of this, if you are receiving untaxed income, that must be declared to HMRC.

One major stumbling block you might come across in the future is when you apply for a mortgage or loan; lenders frequently want details of earnings declared to HMRC. If income hasn’t been declared…your chances are slim at best.

The tax system is a complicated issue and as we have found out ourselves, the predicaments some of our clients have found themselves in for ignoring their own tax obligations to the UK, whether income tax or National Insurance, have been somewhat messy.

Taking this view of the system will have consequences. Failure to file a tax return under these circumstances can lead to penalties or fines from HMRC without consideration that no tax was to be paid in the first place. You must declare your untaxed income to HMRC.

Why you should act now
Whatever your employment within this industry, qualifying crew have the opportunity to clear their tax liability in full, showing transparency of your income tax affairs to the tax authorities and as a result being able to prove to the taxman that you owe him nothing.

We have found that it is mostly the seafarers working on board private yachts and subsequently receive their income gross that aren’t in the tax system. Understandably they think as they’re out of the UK for long periods they don’t need to report their income. However, as we are more aware of the Automatic Exchange of Information (AEOI), the banking industry is becoming more open in sharing information with foreign authorities, so never has it been more important to keep your tax affairs fully up to date.

Therefore, it is those who fail to act that are more at risk from a tax investigation even if their income is more than often tax exempt.

What are you waiting for
At SK Tax Service, we have been fulfilling British seafarers’ tax obligations for over 30 years and fully understand the rules and regulations surrounding the SED.

We are also able to help bring your National Insurance Contributions up to date. Keeping your NICs up to date will also protect your future state benefits and state pension.

If you would like to discuss your personal situation please contact me:
[email protected]
or visit www.sktax.co.uk