For many the idea of not paying tax on their earnings is a pipe dream, yet for U.K. yacht crew it is a reality that is often overlooked.
The Seafarers’ Earnings Deduction is a 100% tax exemption on earnings accrued whilst you are working at sea. After years of legal wrangling between unions and the UK Government, the SED was created to reflect the consistently shifting job market and to overcome the increasing pressures of globalisation on the seafaring community. How is it then that many are still not taking advantage if this valuable legislation?
The simple and honest answer is that many don’t understand how to claim and that HMRC haven’t made the process particularly simple to understand. For fear of completing their returns wrong, many choose to self cert instead. The confusion begins when defining who can and cannot claim. In order to claim the SED, you must be working on a ship and that ship must have docked in a foreign port, so you can’t just embark and disembark in the UK.
A further consideration is the length of time that you have spent outside the UK. You may only spend a maximum of 183 days in the UK per tax year. This can be evidenced with travel documents, visas, passports and seaman’s discharge book. To avoid the panic, and potential avoidance of claiming the SED, caused by lost documentation, it is always advisable to keep a folder on a Cloud full of any evidence that you might require. Additionally, it makes it easier to share information with any accountancy firms that you may use.
It is also worth noting that 100% tax exemption relates to all earnings that you accrue whilst at sea, meaning that you can use it against earnings from other investments, barring rent. With the latest changes introduced this year enabling increased taxation from dividend earnings, this can provide a welcome respite from unexpected bills from HMRC and provides you with more capital to invest. Unlike other systems and deductions, you are not required to pay any tax in advance and there is nothing to claim back. You simply do not pay tax in the first place.
Additionally, with a new global standard on AEOI aimed at reducing tax evasion, it is vital that your earnings and taxes are registered correctly. The ability and speed at which banks in over 100 countries can automatically report financial information with local tax authorities, means that now more than ever, getting your tax liabilities right is essential. All banks are now also required to have the tax residency information of all their account holders on record, a level of information that can only become more intensively scrutinised in coming years.
And, if you are looking to invest your hard-earned funds, it is worth considering that most mortgage lenders now require proof of earnings in the form of completed tax returns. If you are completing your returns wrong or are failing to claim an exemption that you are due, this could cause problems in the long run and may make lenders question whether they can lend to you or not.
So, in a nutshell, you certainly have more to lose than to gain from not claiming the Seafarer’s Earnings Deduction. Aside from the obvious tax that you could be paying, instead of claiming a 100% exemption, there are also the potential problems related to saving, and borrowing, money and the worry that HMRC may be more likely to question why you haven’t claimed an exemption that you are entitled to.
With any tax related questions and concerns it is always advisable to speak to a professional for advice and we are always happy to speak to new clients about their tax compliance.