Reviewed by Edward Waine ATT, Quality & Service Manager at RIFT Tax Refunds

Work at sea outside the UK? Live your working life on a ship? Well sailor, you may be able to claim back 100% tax on your foreign earnings with Seafarers Earning Deduction (SED). But how do you claim this offshore tax refund? And do you even qualify?

Navigating this complicated piece of legislation can at times feel as difficult as backing that ship out of the Suez Canal, but we’re here to help. Let’s look at what the legislation is and how it works.

Understanding Seafarers Earning Deduction

HMRC says that if you’re an employee and work at sea, you may be able to reduce your tax bill by claiming SED.

You can claim it if you:

  • Work on a ship.  
  • Do all or most of your work on a ship.  
  • Are a UK or EEA resident for tax purposes.  
  • Work outside the UK long term, usually for at least 365 days.  

You can’t claim it if you’re a crown employee in the navy or border force for example.

Sounds simple enough right? Unfortunately, that’s where you’re wrong. The legislation can be quite complex. Here, we’ll focus on what a few of the criteria really mean, starting with the definition of a ship.

What counts as a ship?

If the vessel you’re on is classed as an ‘offshore installation’, it doesn’t count as a ship. HMRC doesn’t define exactly what an offshore installation is, but gives some helpful examples. They include:

  • Fixed production platforms.
  • Floating production platforms.
  • Floating storage units.
  • Floating production storage and offloading vessels (FPSOs).
  • Mobile offshore drilling units (drillships, semi-submersibles and jack-ups).
  • Flotels.

Essentially if you’re exploring for mineral resources, working in gas storage or gas recovery or transporting things by pipe, you don’t qualify for SED. Even if you’re at sea nearly 100% of the time.

What counts as working outside the UK long term?

The first thing to note is that the North Sea counts as the UK. You’ll need to show that your ship docks in ports outside Britain, and travels from place to place abroad without entering UK waters.

And when it comes to what is meant by “long-term”, there is certain eligibility criteria to account for:

  • Long term means 365 days or more. This means you can’t make your first claim until at least 365 days have passed.
  • This eligibility period must be made up mainly of days that you were absent from the UK.

If you return back to the UK for a visit, this can still count towards your eligibility period if:

  • No single visit lasts for more than 183 consecutive days.
  • The total number of days in the UK isn’t more than one-half of the total number of days you’re at sea. This is measured from the first day you were at sea to the final day abroad after you got back from the UK. You’ll hear this called the half-day rule.

You can use the HS205 Seafarers Earning Deduction worksheet from HMRC to help you work out if your days outside the UK are enough to qualify.

Benefits of Seafarers Earning Deduction

The greatest benefit of Seafarers Earning Deduction is a pretty big one, so it’s worth navigating the complex system to get it right.

We’re talking no tax on your earnings for your time outside the UK. Nothing. Nada. Now who wouldn’t want to pay no tax? But if you’re not earning in the UK, it makes sense that you shouldn’t have to pay UK tax. Making an SED claim is definitely worth it.

How to apply for Seafarers Earning Deduction

You apply for Seafarers Earning Deduction through a Self Assessment Tax Return. So, the first step is to register for self assessment. You’ll then need to have your documentation in order. This includes:

  • A filled-out Working Sheet (form HS205).
  • Any air tickets or travel vouchers.
  • Copies of hotel bills or receipts.
  • Your passport and visas.
  • Your seafarer's discharge book.
  • The freeboard logs for your ship(s).

There are time limits for claiming SED, and your claims can only go back four years. So, if you’re making a claim this year before 5th April 2024, you can claim for the tax years ending on 5th April 2020 and up. Anything before this and you’re out of time.

If you're an EEA resident, there's a special form for you called R43M(SED).

Expert Insights and tips

When things feel a little complicated, it’s easy to be put off and run scared from HMRC. But if you do, you’ll end up paying tax that you shouldn’t. It really pays to fight your way through choppy waters and tackle the complex system. Here are a few tips to help you do it:

  • Keep accurate records: HMRC won’t pay out for estimates and inaccurate records. You need everything up to date and squeaky clean.
  • Get to know the eligibility rules: Trips home and the half day rule can be tricky. Make sure you understand exactly how these work, so you can schedule any holidays and leave correctly and still be able to claim SED.
  • Use the information given to you from HMRC: The HS205 form is not only a prerequisite for your application, but it also helps you calculate your eligibility. Just make sure you print it off as it can get super confusing trying to do it online.
  • Do things on time: Yes, you can work four years back, but it makes sense to do everything on time for each tax year. That way, you’re not looking through old documentation and trying to work out where you were in the world at that time.
  • Let the experts help you: Just because the system is confusing, doesn’t mean you should bury your head in the sand. Especially not where paying tax is concerned! At RIFT Refunds, we can do the whole process for you. We’ll help you with your documentation and do the application on your behalf. It’s a lot simpler than trying to work it out yourself.

Working offshore often means complicated travel claims based on your particular rotation pattern. We have a lot of clients working offshore and living outside of the UK and the claims they make can be much more complicated so offshore tax rebate claims take an expert to handle. A lot of offshore workers fall into the higher tax bracket too. This means more rules to consider. There may also be not so nice little extras like the High Income Child Benefit charge to deal with. Our offshore tax refund experts will quickly get a clear understanding of your position. That’s the first, most crucial step in getting the best from your refund claim - Edward Waine ATT, Quality & Service Manager

With RIFT's expertise guiding your claims, we’ll make sure everything is properly handled and you don’t miss out on this offshore tax refund. Get in touch with RIFT and start your claim for free!