What is it and who can claim it?
HMRC state that if you’re an employee and work at sea, you may be able to reduce your tax bill by claiming Seafarers’ Earnings Deduction.
To get the deduction you must have:
- Worked on a ship
- Worked outside 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 or Border Force Officer, the only exception to this rule is those employed in the Royal Fleet Auxiliary)
- 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 as long as you meet all the conditions.
What counts as a ‘Ship’ for this tax law?
The word ‘ship’ is not defined in tax law, but ‘offshore installations’ used in the offshore oil and gas industry have been specifically identified and are not regarded as ships for the purposes of seafarers earnings deduction.
Examples of offshore installations, given by HMRC as a guide only, are:
- 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)
Any vessel engaged in exploitation of mineral resources by means of a well whilst standing or stationed in any waters, is an offshore installation. If you work on an offshore installation anywhere in the world, you are not regarded as a ‘seafarer’ for the purposes of the deduction and your earnings for duties performed on such a vessel or structure will not qualify for the deduction. This includes earnings for duties performed in periods where the vessel or structure:
- Is moving between locations
- Has temporarily changed its use
- Has temporarily been taken out of use
Eligible Period, Tax Qualifying Days and The Number of Days Required To Claim Your Tax Back Explained.
HMRC uses the term ‘eligible period’ to refer to a period of 365 days or more. This means you can’t make your first claim until after at least 365 days have passed. Additionally, the eligible period must be made up mainly of days when you are absent from the UK.
For tax purposes HMRC consider you absent from the UK on a particular day if you are outside the UK at midnight at the end of that day. Non-work days outside the UK, for example a holiday abroad, may also be counted as days of absence.
A return visit to the UK can also count towards the eligible period if:
- No single return visit lasts for more than 183 consecutive days
- The total number of days you’ve spent in the UK isn’t more than one-half of the total number of days from your first day abroad to the last day of the period you spent abroad after that return visit. This is known as the ‘half day rule’.
Days spent in the UK may only be counted if they occur between periods of absence. You can’t, for example, make a claim for a period of 365 days which consists of 183 days abroad followed by 182 days in the UK. Further guidance on the half day rule is provided below.
The Half Day Rule in Explained further
HMRC defines the half day rule as “The total number of days you’ve spent in the UK isn’t more than one-half of the total number of days from your first day abroad to the last day of the period you spent abroad after that return visit.”
It is very important to remember that if the half day rule is broken then at that point your eligible period/claim stops and must be restarted.
On initial reading, this can sound rather complicated but don’t worry it’s actually very simple and the worked example below should help you understand it.
- Dave joins his ship in a foreign port on the 1st July and pays off for leave as the ship arrives back in the UK on the morning of the 31st July. This is the first period abroad and it was a total of 30 ‘Tax Qualifying Days’ out of the UK.
- From the 31st July to 30th September he is on leave and stays within the UK. This totals 61 Days in the UK.
- On the 30th September Dave then returns to another ship joining in a foreign port. This ship is solely engaged on foreign voyages and he remains onboard until he pays off in a foreign port on the 30th November. This results in a further 61 tax qualifying days out of the UK.
From this example we can note the following. The total number of days from the first day abroad on the 1st July to the last day abroad after his return UK visit 30th November was 152 days. Half this number is 76 Days and Dave’s return visit whilst he was on leave only lasted 61 days. Therefore Dave did not break the half day rule and this time counts as an ‘Eligible Period’.
Always remember the half day rule is measured from the very first date abroad to the last day abroad after the return visit to the UK.
Working wholly or partly outside of the United Kingdom
In order to claim seafarers earnings deduction your duties must be performed wholly or partly outside the United Kingdom. The North Sea has been classed as a ‘designated area’ by HMRC and is treated as being part of the UK. It is also worth noting that the legislation is silent as to the amount of duties that will satisfy the condition. There is no minimum limit prescribed. Therefore to be considered as working wholly or partly out of the UK it is generally held that during every tax year you must either:
- Complete a voyage or part voyage that begins or ends outside of the UK. In simple terms complete a voyage to or from a foreign port.
- Complete a voyage or part voyage to a rig while it is drilling outside of the UK territorial limits and outside a designated area. This is regarded as ending outside the United Kingdom and the return voyage will be one that begins outside the United Kingdom.
- Complete a replenishment at sea operation outside of the UK territorial limits and outside a designated area.
Do I need to supply proof to or keep records for HMRC?
When submitting your self assessment to HMRC you do not need to send in further evidence however you must keep a range of details and records for HMRC as they may want to check your claim. You can be audited for up to 10 previous tax years so ensure that your records are accurate and safely secured. HMRC has advised you keep the following:
- Completed working sheet HS205 – This website’s tax calculator is a replica and will suffice for this purpose.
- Air tickets or other travel vouchers
- Hotel bills or other receipts
- Passports and visas
- Seafarer’s discharge book
- Freeboard logs of the ships you carried out duties on
Additionally, HMRC may contact your employer to confirm details of your ship’s voyage and crew.
What is the HS205 working sheet and do I need to complete it?
The HMRC HS205 guide and working sheet can be downloaded here. It is designed by HMRC to help you calculate whether you have a qualifying period and can claim your tax back. In order to complete the form you must print and manually fill it out. Unfortunately it is unnecessarily complicated and confusing.
A far easier way to complete the form is using our digital HS205 calculator/form available in the Tax Day Calculator Section of this site. This digitally replicates HMRC Form HS205 and does all the mathematical hard work for you. It is fully automated and all you need to do is enter the dates that you left and returned to the UK. Unlike other forms and calculators, this can be printed and submitted to HMRC as evidence of your entitlement to claim your tax back should you be subject to an audit. It has been designed to include some additional useful features including; giving you a running total of your Tax Qualifying Days, a comment section to help you keep track of your dates and clearly indicating in plain language whether you have an eligible period or not.