Crew Family Office’s summary of Seafarers earning deduction
What is a seafarers earning deduction?
A Seafarers earnings deduction is an unusual example of the tax authorities in the UK. This is down to them being generous and offering a reduction in the tax bill for all crew from Superyacht to tanker, provided they meet the criteria. The core criteria to qualify for the seafarers earning deduction are that you have been employed outside of the UK on a boat for the majority of 365 days period and that you remain tax resident in the UK.
The complication is that tax residency is based on the number of days you spend in a county. So, the key is to strike the right balance between days spent in the UK without disqualifying yourself from the seafarer’s earnings deduction.
Dual tax resident
Another aspect of the seafarer’s earnings deduction to consider is dual tax resident. It is possible to be a tax resident in more than one country. This will be down to the number of days you spend in any one country.However, this may mean that even though you qualify for the seafarers earning deduction in the UK, you are still taxable on your income in another country.
To be a tax resident in the UK there are a variety of complicated rules. Yet, you will almost always be a tax resident if you have spent 183 days in the UK in any tax year. Additionally, you will almost certainly not be taxed if you have spent less than 16 days during the tax year. It is also possible to tax residents if you have a UK home where you spend 30 days during the tax year and that is more time than you have spent in any other country.
If you are considered a tax resident in a country then that will mean you will be taxable on all of your income in that country. This includes things like dividends from any company even if it’s based overseas and rental income, again even if the property is in a different country.
Although, most countries have double taxation treaties which will mean that if any tax is suffered on the income from another country, you will get relief for it in the UK against your tax bill.
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Seafarers earnings deduction and your time in the UK
Part of the complication around the seafarer’s earnings deduction is that the rule hasn’t been legislated, so there is no real clarity over interpretations. For example, you are not meant to have any large gaps where you are in the UK. What constitutes a large gap is not clear, although anything less than 90 days would normally be considered acceptable.
With the UK becoming an increasingly popular destination for boats, There is an interesting problem arising for British crew who are onboard yachts that tour UK water for extended periods of time, or are in shipyard periods in the UK. Unfortunately, as these duties are not carried on outside of the UK, depending on the length of time the boat is in the UK this income can be taxable.
Time out of the UK
If you’re employed but on shore leave and are close to having too many days in the UK, an option could be to take extended leave outside of the UK. This will ensure you don’t have too much time in the UK. What’s more, it is still considered qualifying for the purposes of the day count for the seafarer’s earnings deduction.
The seafarers earning deduction is a complicated rule and it can be easy to make mistakes around it, If you have any questions on how it impacts you then please do get in touch with our accountant at firstname.lastname@example.org.
If you want to learn more about tax and how crew is impacted by it, read more about it here.