Seafarers Earnings Deduction & Foreign Taxes

16 August 2019

Further to our previous blogs in October 2017 and May 2018, we continue to work with clients who are making Seafarers Earnings Deduction (SED) claims to HMRC. Given that individuals who qualify for the Seafarers Earnings Deduction (SED) are able to reclaim up to 100% of the UK PAYE that they have paid throughout the year, HMRC continue to focus on this area.

As a reminder, in order to qualify for the SED, a taxpayer must meet the following conditions;

  • The vessel must be a qualifying vessel.
  • The Seafarer must be carrying out all work duties on the vessel in order to qualify.
  • The vessel must have either been embarked or disembarked by the Seafarer at a foreign port at least once in a UK tax year.
  • The claimant must have had more than 183 midnights out with the UK 12 mile limit in any 365 day period. Special attention needs to be paid to the midnight positions of the vessel.
  • An eligible period consisting of at least 365 days must have been achieved. This needs to have been passed before a claim is made.

It is important to remember that the SED is a UK claim only, and therefore a Seafarer can only reclaim any UK tax paid. Where Seafarers trigger foreign tax liabilities as a result of their work in another country’s waters, any foreign tax paid will not be available to reclaim via the SED claim and so this must be carefully considered by both the Seafarer and their employer.

Depending on the mechanism for paying the foreign tax liability, the amount of UK tax available to claim under the SED may be impacted, for example if the foreign tax is ultimately offset against UK tax under a Foreign Tax Credit claim on a tax return, or on the payroll under the Net of Tax Credit scheme, then the amount of UK tax due to HMRC is reduced by the foreign tax, and therefore so is the amount of UK tax available under the SED claim.

If you are unsure as to whether you may be eligible to claim the ‘SED’ or you require any assistance or further information on the ‘SED’ and the interaction with foreign taxes, please do not hesitate to contact Laura Bills (laura.bills@aab.uk) or your usual AAB contact.

To find out more about the Payroll and Employment Taxes team click here.

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