We’ve completed hundreds of tax returns for our customers and over time some clear patterns have emerged around why people fall foul of the Seafarers Earnings Deduction (SED) rules.
It’s always gutting when we have to break the news that someone suddenly owes a large tax bill, often because they spent a bit too long out of the UK or chose to get paid through a UK limited company without realising the consequences.
The SED can be incredibly valuable, but only if you meet the rules. A few simple mistakes can turn what should have been a tax-free year into a very expensive one.
The good news is that with a bit of understanding and planning many of these problems can be avoided.
The Seafarers Earnings Deduction (SED) can offer significant tax relief for those working at sea, but it comes with strict eligibility requirements.
Many seafarers find themselves caught out by some of the common issues that arise when trying to qualify.
Understanding these pitfalls can save you from unnecessary tax liabilities and ensure your claims are valid.
Why Seafarers become ineligible for SED: Most common issues we see
1. Residency
Most common issue: Not qualifying for SED because you spent less than 16 days in the UK
One of the most frequent and confusing problems relates to residency. To benefit from SED, you need to be a UK resident for tax purposes.
You assume because you were born in the UK, have family in the UK, have a UK passport, you’d be certain you were a UK resident for tax purposes. Whilst that is a fair assumption, it’s a wrong one.
Under the first set of rules for the residency test, HMRC requires that you spend at least 16 days in the UK during the tax year to be considered a resident.
Falling short of this can leave you ineligible, even if you spend the majority of the year working overseas.
It’s a fine balance. A resident usually means you would have been in the UK for more than 183 days within the tax year. However, if you are in the UK for more than 183 days, you don’t comply with SED – See issue 3. 183 days outside the UK below
Top mistake: Yacht crew who finish a season and head off travelling for months without returning to the UK can fall below the 16-day threshold and lose their residency status.
Complete HMRC’s residency test >
2. The 365 day eligible period
Most common issue: Starting sea work but not reaching 365 days outside the UK.
Many seafarers also stumble over the qualifying period itself.
To qualify for SED, you must complete an “eligible period” that lasts at least 365 days. This period starts from the day you leave the UK to begin work on a ship. During that time, you can return home, but you need to carefully manage your UK visits.
- No single visit can exceed 183 consecutive days.
- The total days you spend in the UK during your eligible period must not exceed half the total time spent overseas.
Until you complete your first 365 days, you cannot submit an SED claim. This catches out a lot of new crew who think they’re immediately eligible as soon as they start working at sea.
3. 183 days outside the UK
Most common issue: Not spending enough time overseas during your eligible period.
During your 365-day period, you must spend at least 183 days outside the UK.
HMRC counts days based on where you are at midnight, and being more than 12 miles offshore counts as being outside the UK.
4. Limited company issues
Most common issue: Income paid through a UK limited company may not qualify for SED
Another common complication involves seafarers who work through or set up their own UK limited company.
While operating via a limited company can be tax-efficient in some industries, it can complicate matters for SED.
You must be employed directly by the shipping company or vessel. Income paid through a UK limited company can fall outside this definition, especially if it is structured as dividends or consultancy fees rather than direct employment income.
The contract needs to clearly state that you are an employee of the ship or operator
5. Qualifying voyage
Most common issue: Voyages starting and finishing in the UK don’t count.
Finally, the nature of your voyages plays a critical role. Not all sea work automatically qualifies.
To qualify for SED, your work must involve voyages that begin and end at foreign ports.
If your ship leaves a UK port, sails around, and then returns to a UK port, even if you’ve been at sea for weeks – that doesn’t count as a qualifying voyage for SED purposes. HMRC is very clear that your sea service must involve international travel.
A good example is some cruise ship work. You might be working full-time at sea on a cruise ship based in Southampton, but if all your voyages start and finish in Southampton, even if you visit international ports in between, HMRC may not consider this a qualifying voyage.
What matters is where the voyage starts and ends, not where you go in between.
For SED, the key point is that the ship itself needs to operate internationally and your voyages must start and finish outside the UK.
Ferry operators or domestic cruise itineraries that loop back to the UK are a common reason why you can’t claim SED.
Need further advice about how to claim Seafarers’ Earnings Deduction?
Understanding these common issues can help you avoid costly mistakes when completing your SED claim.
Good record keeping, careful planning of your time in the UK, and proper documentation of your voyages are all essential to ensure you remain within the rules.
The best way to find out whether you qualify for Seafarer’s Earnings Deduction and to ensure your SED claim is as smooth as possible is by seeking expert help and advice – and that’s where we come in!
We run a specialist seafarers’ tax service to help. For just £210 a year, we will complete your tax return for you and make sure everything is correct so that your SED claim is approved.
