Well Service Vessels - Pride of South America decision

27th February 2009

We have now received the revised guidelines from HMRC in relation to the reclassification of certain vessels.  The principal point is that this is effective from the 6th April 2008, which means claims for the SED in respect of the 07/08 tax year and earlier, seem to be safe and won't be disallowed in this instance. 

Also the term "stationary" has been defined.  If the vessel is stationary for 5 days or less, or as we prefer to say, 120 hours which is more specific, then it's okay and not classed as being stationary for the purpose of the SED. However there are one or two other issues that we need clarifying with the tax office. It should be borne in mind that it is only where the vessel is put to a "relevant use" in terms of being involved in the exploiting of, or exploration for, minerals AND the vessel is stationary for more than five days (120 hours) would it be classed as a fixed installation, and therefore not eligible for the SED claim.

You can read the guidelines on the HMRC website

Also if you have any specific questions regarding your personal circumstance then please don't hesitate to contact us or drop us an email.

20th November 2008

We have now had the opportunity of reading a letter from Stephen Timms MP, Financial Secretary to the Treasury, regarding the Revenue’s interpretation of what constitutes a vessel. He appears to have backed away, quite significantly, from his earlier comments when he met a delegation of MPs on the 15 October.

It now seems that the Revenue will now get their way on disallowing a significant number of vessels from qualifying for the SED. At present we are all left hanging waiting for the revised guidance which is to be issued in February 2009.

We feel the best advice we can give is to continue to lobby your MP to make sure that the interpretation is not too draconian, and certainly not backdated into the 2007/2008 tax year. We can only wait and see exactly what the Revenue imposes on us.

29th October 2008

We have now received further clarification, of sorts, from Centre 1 regarding their decision on how to treat Seafarers Earnings Deduction (SED) claims following the Commissioners decision on the Pride South America. I am repeating their letter herewith:

SED has never been available for people working on 'offshore installations' rather than ships. Broadly, the legislation provides that there are two tests both of which must be met for a vessel to be an "offshore installation". A vessel must be involved in the exploration or exploitation of mineral resources and standing or stationary 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.

HMRC'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. HMRC will publish revised guidance in Febraury 2009.

HMRC appreciates that some people may wonder whether they must submit their 2007/08 tax returns before we publish our revised guidance. All 2007/08 tax returns must be filed within the relevant deadlines.

Anyone who decides they want 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 return. For the 2007/08 tax return people have until 31 January 2010 to make an amendment.

If someone wishes to consider making a claim to SED for 2007/08 before guidance is revised thay can refer to the legislation on which HMRC's guidance for SED is based. It is publicly available as follows:

The legislation for SED is in sections 378 to 385 of the Income Tax (Earnings and Pensions) Act 2003.

The definition of "offshore installation" is in section 1001 of the Income Tax Act 2007

The Special Commissioner's decision in the Pride South America case is available on the Finance and Tax Tribunal's website.

End

Basically they are not saying what constitutes "stationary" which is obviously key in all this. Also, when you read the meaning of an offshore installation, it talks of "a structure which is, is to be, or has been, put to a relevant use". It goes on to say that it is only considered not to be an offshore installation if it has permanently ceased to be put to a relevant use. Therefore, if a Dive Support ship (for example) spends any time stationary by a well the Revenue could argue that it will always be an offshore installation until it permanently ceases to do that sort of work. This may well mean that, despite the recent assurances given by the Treasury Minister, we appear to be back to square one and all these vessels will be dis-qualified from being classed as vessels.

Obviously we are seeking clarification on this and will post any further news as soon as we get it. I would strongly urge you all to continue the pressure on your own local MPs and ask your employers to get involved as well, as before, as we do not seem to be out of the wood on this one just yet.

To ensure you are kept in the picture and receive accurate, reliable information on your tax affairs, sign up with SK Tax Service today, or if necessary contact us for further clarification if you are already a client.