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HMRC internal manual

Employment Income Manual

Seafarers' Earnings Deduction: meaning of offshore installation: 2004/05 onwards

Section 385 ITEPA 2003 and Section 1001 ITA 2007

Seafarers’ Earnings Deduction (SED) is available to a “seafarer” who performs duties of employment on a “ship” if various conditions are satisfied (EIM33101).

From 6 April 2007 Section 1001 ITA 2007 provides a free-standing definition of offshore installation for the purposes of the Taxes Acts including SED. Between 6 April 2004 and 5 April 2007, the equivalent rules were found in Section 837C ICTA 1988 (see below). For years up to and including 2003/04 see EIM33102.

Definition of offshore installation - Section 1001 ITA 2007

The definition of a ship excludes an offshore installation (EIM33101).

An offshore installation is a structure (a term which includes a ship or other vessel) which is, is to be, or has been, put to a “relevant use” while standing or stationed in any waters. The definition will therefore include any floating structure that maintains its position while being used for a relevant use regardless of whether it anchors or keeps on station by dynamic positioning (see EIM33108).

The reference to “any waters” means that structures of this nature that are, are to be or have been used for a relevant use anywhere in the world, should not be accepted as ships for the purposes of the deduction.

Relevant use

A structure is an offshore installation if it is, is to be or has been put to a relevant use whilst in water. A relevant use is use for -

  • exploiting mineral resources by means of a well;
  • exploration with a view to exploiting mineral resources by means of a well;
  • storage of gas in or under the shore or the bed of any waters;
  • recovery of gas so stored;
  • conveyance of things by means of a pipe;
  • mainly for the provision of accommodation for persons who work on or from a structure which is, is to be, or has been, put to a use specified above

EIM33104 lists different categories of vessel and structure used in the offshore oil and gas industry and indicates whether they are regarded as ships or offshore installations for the purposes of SED.

Changes in use

Section 1001(2) provides that a structure is not an offshore installation if -

  • it has ceased permanently to be put to a relevant use,
  • it is not, and is not to be, put to any other relevant use, and
  • since ceasing permanently to be put to a relevant use, it has been put to a use which is not relevant.

The effect of this provision is that a structure that satisfies the definition of offshore installation will remain within the definition unless it has permanently ceased to be used as an offshore installation with no prospect of resuming such use and it has been put to an entirely new use.

Permanent cessation requires a cessation of use that is both lasting (i.e. not merely temporary) and is combined with the lack of a fixed intention to use the vessels in such a manner again. This should be a straightforward question of fact. The term does not require

  • either that there is an intention for the vessel never to be used again in a particular manner, or
  • that the vessel be rendered physically incapable of such use ever again as a result of a refit or refurbishment.

See EIM33107 for vessels designed to be capable of more than one use.


The following example illustrates how the legislation works. On 6 April 2007, a mobile drilling rig in port in Rotterdam obtained a contract for work in the Dutch sector of the North Sea from 1 May. It left Rotterdam on 30 April and carried out exploration drilling for gas until 31 July. On completion of its contract, it returned to Rotterdam and remained idle until 31 December. On 1 January 2008, it obtained a new drilling contract in the Gulf of Mexico and left Rotterdam on 1 February arriving in Mexican waters on 28 February where it drilled for oil between 1 March and 5 April.

The rig was an offshore installation throughout 2007-08. At any one time, it was either in use, to be used or it had been used for “exploration with a view to exploiting mineral resources by means of a well”. This includes all periods in transit between locations and the periods when the rig was not used. Therefore, earnings attributable to any duties performed on the rig in 2007-08 are not eligible for SED.

Definition of offshore installation before 6 April 2007 - Section 837C ICTA 1988

The definition of an offshore installation in section 837C ICTA 1988 which applied until 5 April 2007 had the same effect as section 1001 ITA 2007. The only significant difference in wording was the reference to a “specified” use in section 837C instead of a “relevant” use in section 1001.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)