The rules say….
If you’re an employee and work at sea, you may be able to reduce your tax bill by getting the Seafarers’ Earnings Deduction.
To get the deduction you must have:
- worked on a ship
- worked outside of the UK long enough to qualify for the deduction – usually a minimum of 365 days
- been resident in the UK or resident for tax purposes in a European Economic Area (EEA) State (other than the UK)
You can’t get the deduction if you were:
- a Crown employee (eg, a Royal Navy sailor)
- not a UK resident
- not a resident of an EEA State (other than the UK)
If you had more than one job you’ll still get the deduction against your seafarer pay if you meet all the conditions.
So if you are self employed – Sole Trader or Partnership – you can’t be an employee.
If you work on cruise ship or a shipping line you will probably be an employee so that’s fine but if you would on other ships then you should create your own Limited Company so that you can be an employee.
HMRC are actively investigating many self assessment returns where the claim for Seafarers Deductions has been incorrectly made.
The mechanics of the deduction – the first stage is to calculate what the legislation (ITEPA 2003, s 378(2) and (3)) calls an eligible period, which:
- is a period of at least 365 days;
- begins and ends with a period of absence from the UK;
- does not include any single period of presence in the UK in excess of 183 days; and
- at least half of which is spent outside the UK (the 50% test to which All at Sea refers).
Then its based on employment earnings.
Here is a tax calculator to help http://seafarerstaxcalculator.com/
A Ship is large sea vessel carrying passengers or cargo, so its unlikely a yacht would be considered a ship. Although if its large enough it might.
If they weren’t on cruise ships HMRC would probably argue that they were employees but in the case of cruise ships they argue the opposite.
Pete Matthews (1) Keith Sidwick (2) v Revenue & Customs  UKFTT 24 (TC)
Mr Sidwick was a musician and played piano on a series of cruise ships. Mr Matthews was a juggler, similarly entertaining passengers on cruise ships. Both were subject to a close degree of control by the ships officers but the First-tier Tribunal found that this degree of control was required by the context of a cruise ship.
The First-tier Tribunal concluded that the entertainers were not employees ‘…but earn their living by entering into a series of separate engagements with a number of different cruise lines in a similar way to actors…’
The reason why HMRC argued against employment was to stop a claim for Seafarers Earnings Deductions.
To get the deduction you must:
- work on a ship. Oil rigs and other offshore installations aren’t ships for the purposes of Seafarers’ Earnings Deduction – but cargo vessels, tankers, cruise liners and passenger vessels are
- work all or part of the time outside the UK. This means that for each employment you must carry out duties on at least one voyage per year that begins or ends at a foreign port
- be resident in the UK or resident for tax purposes in a European Economic Area (EEA) State (other than the UK) – find out more by following the link ‘Check your residence status’ in the section below
You get the deduction from your earnings as a seafarer if you have an ‘eligible period’ of at least 365 days that consists mainly of days when you are absent from the UK.
From 6 April 2013 the rules that determine if someone is resident in the UK for tax purposes have been put on a statutory basis. These rules are known as the Statutory Residence Test (SRT).