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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: offshore installations and ships: tax year 2008 to 2009 onwards: the effect of the decisions in Torr (PSA) and Spowage (Prosafe)

For the tax year 2008 to 2009 onwards, the lists remain relevant but the implications of the decisions in Torr and Others v CIR and Spowage and Others v CIR must be taken into account as well. See below for further information.

Section 1001 ITA 2007

Following the decision in Torr and Others v CIR published in January 2008, for the tax year 2008 to 2009 onwards HMRC issued revised guidance explaining its interpretation of the distinction between a ship and an offshore installation.

However, following a more recent decision in Spowage and Others v CIR published in June 2009, HMRC has undertaken a further review and has revised its guidance again. This replaces the earlier guidance published after the Torr decision and applies for the tax year 2008 to 2009 onwards.

Before the Torr and Spowage decisions, HMRC regarded certain types of vessels as ships for the purpose of SED (EIM33104) because it understood these vessels always performed their duties in a transient manner (see EIM33108). The following are examples of the vessels concerned:

  • diving support vessels (DSVs)
  • heavy lifting and construction vessels
  • well service vessels (WSVs)

For the tax year 2008 to 2009 onwards, the decisions in Torr and Spowage require this classification based simply on vessel type to be reconsidered. It’s no longer possible to class a vessel as either an offshore installation or as a ship, based solely on the vessel type or description.

It’s necessary to consider the nature of the duties performed by the vessel. For instance, while a diving support vessel is likely in most circumstances to be classed as a ship, in circumstances where it carries out tasks like those of the PSA in Torr, it could be classed as an offshore installation. Which definition applies depends on the facts of each case.

The effect of the decision in Torr

The PSA performed its duties entirely as a well workover and support vessel. The Special Commissioner found that the services carried out by the PSA constituted a relevant use (EIM33103) and that the PSA performed its duties whilst standing or stationed in any waters. Consequently, the PSA was an offshore installation.

For the tax year 2008 to 2009 onwards, based on the decision in Torr, a support vessel engaged in exploiting mineral resources by means of a well whilst standing or stationed, would be classified as an offshore installation. For example, this could apply to DSVs, heavy lifting/construction vessels and WSVs because repair duties were regarded in Torr as part of the process of exploiting mineral resources by means of a well and therefore qualified as a relevant use (EIM33103).

However, if these vessels do not perform those duties whilst standing or stationed, they remain outside the definition of an offshore installation. Nonetheless, some support vessels do perform duties while standing or stationed and, after PSA, these are classed as offshore installations instead of ships.

Some of the same principles considered in Torr were subsequently considered again in Spowage. Consequently, the Torr decision cannot be applied in isolation. It must be considered in light of the later decision in Spowage and the common principles that emerge from both cases considered together (see EIM33106).

The effect of the decision in Spowage

The Spowage decision, which was published approximately 18 months after Torr, restricts the circumstances in which a support vessel engaged in construction and maintenance activity can be regarded as performing a relevant use.

The judge in the First-Tier Tribunal found that the 3 vessels owned by Prosafe performed a range of construction and maintenance duties in support of one or more production platforms. The judge likened the Prosafe vessels to “floating toolboxes”. Also he found that the tasks they performed (e.g. fabrication, construction and maintenance work carried out on the Prosafe vessels before the plant/equipment was moved subsequently by crane or vessel to be installed elsewhere) were performed “remote from actual oil extraction and/or processing”.

Tax year 2008 to 2009 onwards - the meaning of “exploiting mineral resources by means of a well”

Consequently, the wide definition of “exploiting mineral resources by means of a well” that arose from the decision in Torr, is partly restricted by the narrower definition of that term applied in the more recent decision in Spowage.

For the tax year 2008 to 2009 onwards, the implications of the decisions in Torr and Spowage apply together and must be considered to determine whether a vessel is an offshore installation or a ship.