WHAT HMRC HAS TO SAY

Seafarers may be entitled to a 100% relief from income tax on their earnings under Seafarer's Earnings Deduction (SED). A seafarer is eligible for SED if they perform duties of their employment wholly or partly abroad on a ship, provided they are absent from the United Kingdom for an "eligible period" of at least 365 days or a combined period made up of days abroad and days inside the United Kingdom.

The Special Commissioners, an independent body who determine tax appeals, considered appeals by five individuals who had been employed on the Pride South America and had claimed SED. The Special Commissioner decided that the Pride South America was not a ship for the purposes of SED and the five appellants were therefore not entitled to SED (Torr and Others v CIR (SpC679)).

The Special Commissioner's decision will affect some of the types of vessel which are ships for the purposes of SED. HMRC is aware of the uncertainty that this decision has caused. However, given the technical nature of the ruling HMRC want to work with representatives' bodies including Nautilus and the National Union of Rail Maritime&Transport Workers before issuing revised guidance. HM Revenue and Custom's revised guidance will reflect discussions with stakeholders about the interpretation of the Pride South America decision to ensure that it is implemented in a clear and practical manner.

SED is a deduction from earnings from employment as a seafarer. SED has never been available for people working on "offshore installations" rather than ships. It was this issue that was subject to review by the Special Commissioners. Broadly, the legislation provides that there are two conditions both of which must be met for a vessel to be an "offshore installation". The first condition requires the vessel to be involved in a "relevant use", for which there are six alternative definitions. The definition of relevant use that applies most often, and which applied in the Pride South America case, relates to a vessel involved in the exploitation of mineral resources. The second condition, is that the vessel is standing or stationed whilst doing so. Construction, construction support, well service and dive support vessels that do not meet either of these tests will continue to be ships for the purposes of SED.

The filing return dates for 2007/08 tax returns were 31 October 2008 for paper returns and 31 January 2009 for online returns. HMRC expects that most people who claim SED will have already submitted their 2007/08 returns. However, some people may not have submitted their 2007/08 return. All tax 2007-08 returns should have been filed within the relevant deadlines which falled before the relevant guidance was published in February 2009.

Anyone who wanted to see HMRC's revised guidance before deciding whether they are entitled to claim SED can submit their return without a claim to SED. They can then amend their 2007-08 tax return in the usual way to include a claim to SED. People have 12 months from 31 January after the end of the tax year to correct their tax return. For the 2007-08 return, people have until 31 January 2010 to make an amendment.

HMRC recognises that this may disappoint some individuals, however we believe that it was important to get the revised guidance right.