Seafarers Earnings Deduction (SED) and Student Loan Repayments: A Growing Concern for Seafarers

The Seafarers Earnings Deduction (SED) is a tax relief available to seafarers working on qualifying ships outside of the UK. It allows them to exclude their seafaring income from UK tax, thereby lowering their tax liability. However, despite claiming this deduction through their Self-Assessment tax returns, many seafarers have encountered an ongoing issue with the Student Loan Company (SLC) when it comes to their student loan repayments. 

The Problem with the SLC’s Calculation Method 

Historically, the SLC has been responsible for calculating student loan repayments based on the income reported in Self-Assessment returns. For seafarers who are eligible for the SED, this means that their taxable income is reduced, which should subsequently lower the repayment amounts. However, many seafarers have found that the SLC continues to base their student loan repayment calculations on gross earnings – the total income before deductions like the SED – rather than their actual taxable income. This discrepancy results in inflated repayment amounts, leading to higher demands and increased financial strain on seafarers. 

Inconsistent Approach by the SLC 

The situation has been made more complex by the inconsistency in the SLC's approach. While some seafarers report that the SLC has used the net income after SED to calculate repayments, others have been subjected to the full, gross income figures, despite correctly declaring their SED claims through their Self-Assessment tax returns. This inconsistency is frustrating for seafarers, as once a repayment plan is set, it can be very difficult to challenge or adjust the amounts. This lack of clarity around how the SLC calculates student loan repayments – and their failure to account for the SED in many cases – has created a substantial administrative and financial burden for seafarers. 

Rising Loan Interest and Financial Strain 

One of the most pressing issues for seafarers is the continuous accumulation of interest on their student loans. The UK’s student loan system charges interest on outstanding balances, and as long as the loans remain unpaid, the interest continues to grow. With inflated repayment calculations based on incorrect figures, seafarers are likely paying more than they should, leading to an ongoing, rising financial burden. Additionally, the failure to apply the SED properly means that their loans could continue to accumulate interest at a higher rate than necessary, exacerbating the problem. 

The impact of this situation is significant: for many seafarers, the incorrect assessment of their loan repayments means that they are paying more than they need to, and their loans are growing larger over time due to the accumulating interest. 

Seafarers Need to Stay Proactive, but the System Is Flawed 

While seafarers are doing their part by submitting accurate Self-Assessment returns and ensuring that the SED is properly claimed, the system remains flawed. As the SLC largely relies on data provided by HMRC, there is an ongoing challenge for seafarers to ensure that their claims are correctly reflected in their repayment calculations. The onus is placed on seafarers to contact the SLC and rectify any errors, but as the repayment plans are set in stone once determined, this becomes an incredibly difficult task. Furthermore, since the SLC has not been consistent in its approach, seafarers often find that they must repeatedly explain their situation and request adjustments. 

What Can Seafarers Do? 

Seafarers should remain persistent in ensuring that their repayment calculations accurately reflect their net taxable income after the SED has been applied. However, given the inconsistent handling by the SLC, it remains an ongoing issue that needs to be addressed for greater clarity and fairness in the future. 

In conclusion, the failure of the SLC to consistently apply the SED has created a situation where seafarers are facing unnecessary financial strain, inflated repayment demands, and growing interest on their student loans. Seafarers should continue to submit accurate returns, but the responsibility also lies with the SLC to make the necessary adjustments to ensure fair and accurate student loan repayments.