Seafarers’ earnings deduction

Seafarer earnings deduction campaign
In the UK, Nautilus and its predecessor unions campaigned for many years to ensure the tax rules for seafarers reflected the special nature of their work. The campaign centred on the Seafarers’ Earnings Deduction (SED) – who this should apply to and whether it should be retained.

The historical context is that British seafarers had been covered by special tax rules for decades - because they are often out of the country for long periods, they work in a highly competitive labour market, and because of the requirement for a supply of seafarers for strategic defence needs.

For some time, seafarers were covered by income tax concessions that were available to all members of the public who worked overseas for substantial amounts of a tax year.

That changed in 1984, when the government radically revised the provisions governing entitlement to concessions. This move was condemned by the shipping industry, and after four years of lobbying by maritime unions and ship owners, the 1988 Finance Act introduced an amendment that enabled more seafarers to be eligible for 100% deductions.

Three years later — following a series of problems in securing sufficient UK ships and seafarers to transport military equipment to the Gulf after Iraq invaded Kuwait - the 1991 Finance Act brought in further improvements to tax rules for seafarers, effectively doubling the period (to 183 days) that seafarers were able to spend in the UK.

Since then, the Seafarers’ Earnings Deduction, as it became known, has faced a number of challenges. By the mid 1990s, for example, it had become clear that that the Inland Revenue was allowing the abuse of the ‘183-day rule’ by some non-seafarers working onboard certain types of vessel or installation.

To address the problem, the Inland Revenue introduced new guidance on eligibility following the 1998 Finance Act. The issues at stake revolved around the definition of the words 'seafarers' and 'ship' under the income tax rules.

In March 1998 the law was clarified so that anything that fell within the definition of an 'offshore installation' could not be classed as a 'ship' for tax purposes - even if it satisfies the general conditions set out above. The ruling excluded such things as:

  • fixed production platforms
  • floating production platforms
  • mobile offshore drilling units
  • flotels

The Revenue also argued that the following are not offshore installations and may be accepted as 'ships' for tax purposes if they satisfy the general conditions:

  • heavy lifting vessels
  • diving support vessels
  • shuttle tankers
  • well service vessels
  • dredgers
  • survey vessels
  • pipe-laying barges

These stricter rules were challenged in an Appeal Court case in 2001, which overturned a High Court judgement that three men who worked on the jack-up rigs Santa Fe Magellan and Santa Fe Monarch were not entitled to the seafarers' tax concessions as the rigs were not considered to be ships.

Following the judgement, the Union wrote to Treasury ministers to request that the government implement changes to reflect the ruling and to recompense those members on similar vessels who had been denied the tax concessions.

The campaign for clarity and fairness over SED continued throughout the decade, and in 2009 the tax authority HMRC issued revised guidance on who was entitled to SED and which financial years were covered by claims from those who believed they had wrongly been refused the tax status.

In May 2012 Nautilus won a crucial legal battle with HM Revenue and Customs over the rules for claiming seafarers’ income tax concessions. In the important test case, a High Court judge upheld the Union’s arguments that members serving on two ferries had a ‘legitimate expectation’ that they were entitled to the Seafarers’ Earnings Deduction.

Following this success, the SED campaign is no longer being active in the UK in the same way, although the Union still campaigns to have SED extended to all seafarers, not just those who are away for 183 days such as ferries crew.

The Union also campaigns on this issue across Europe, calling on the member states of counties where our members are based to make full use of the State Aid guidelines on tax relief for seafarers.

The Union recommends maritime tax specialists for members needing advice and guidance on what to claim. The Members area has details of these companies.

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