Stop paying income tax on offshore earnings to the HMRC

If you happen to be a citizen of the United Kingdom and employed as a Seafarer you may actually be entitled to an amazing tax exemption that came into effect as of the 2012 Finance Act. We shall enlighten you with the terms and details of this amazing piece of legislation that entitles offshore workers the opportunity to keep 100% of their earnings made outside of the UK in foreign waters.

Will this tax exemption apply to you?

Do you understand the legalities of the exemption to take full advantage of it? Many people will, unfortunately, miss out on this unique opportunity because it is not very well known and the rules and details surrounding this tax exemption are very vague when you read the HMRC help sheets regarding the Seafarers Earnings Deduction.

At first, the Seafarers Earnings Deduction came into being as of the 1988 Finance Act. It was not as beneficial as it is now. Thankfully unions that represented seafaring employed UK citizens went to battle with the HMRC and actually changed the laws as of 2012. If you qualify as a seafarer then you are entitled to a 100% earnings tax exemption. This tax law came into effect because of the industry demand and competition among workers for positions in the seafaring trade. Also, this tax exemption came into effect as a precautionary measure to further serve defence needs of the United Kingdom by having its citizens in different foreign locations.

Yacht crew enjoy tax free income if they use the seafarers earnings deduction exemption through HMRC. Image credit: Boat International

Although defence needs were an initial reason for this tax exemption, it does not include people who are employed in the armed forces. Because of the highly competitive labor market, the HMRC created this tax exemption. There are a few regulations you must follow to be eligible for the Seafarers Earnings Deduction and we will discuss these rules below.

While taking a look at Helpsheet 205 from the HMRC it clearly states that a person must work on a ship that leaves or ports in foreign waters and a UK seafaring employee must spend no longer than 183 days in the United Kingdom per year. Now what is considered as a ship is not really listed in the help sheet however what is not a ship is listed as flotels, floating and fixed production drilling platforms as well as mobile offshore drilling units. If you are employed on one of these units then you will not be able to use the Seafarers Earnings Deduction. As we also stated briefly you are only allowed a certain period of time within the United Kingdom to benefit from this tax exemption.

What is listed is that a seafaring employee may spend only 183 days ashore in the United Kingdom per given year to qualify for the tax exemption. When you spend time ashore in the UK you will need to keep all documentation and paperwork that states your given time ashore. A day is determined as being in the country as of midnight on the given day counts as a day in the United Kingdom. You will need to keep your paperwork available for tax reasons so also keep ahold of stubs.

Another factor that must be considered to benefit from the tax break is what actually qualifies as a period at sea according to the HMRC and Helpsheet 205. These rules consist of the fact that you must embark and disembark from a foreign port. This means that you cannot embark or disembark within the United Kingdom. If you do then you will not qualify for the Seafarers Earnings Deduction. Your ability to take advantage of the exemption will also be determined by how many days you have spent at sea outside of the UK. You can use a spreadsheet available at the HMRC website to calculate how many days you have spent outside of the UK and whether or not you qualify.

When it comes to tax returns it is absolutely essential that you get it done. Some people will try to declare no earnings and they end up only hurting themselves. Other people employed as Seafarers may choose to set up a company for tax purposes or set up a company in a foreign country.

Evading taxes is never a good idea and the HMRC has a policy that allows them to find out everything about your financial records. Ultimately if you chose to not declare your income you really could not do anything with it. Most bank lenders and mortgage brokers require a SA302 letter which means you will need to complete your annual taxes.

External Resources

This article was authored with the help of the following amazing third party websites: