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HMRC internal manual

Employment Income Manual

Seafarers’ Earnings Deduction: standing or stationed in any waters: dynamic positioning

Section 1001(4)(a) and (b) ITA 2007

For the purposes of a claim to Seafarers’ Earnings Deduction (SED), an individual must perform duties of an employment on a ship. The definition of a ship excludes an offshore installation (see EIM33103).

An offshore installation is defined primarily in respect of the relevant use (EIM33107) that it performs, but the structure must also be put to that use whilst “standing or stationed” in any waters (EIM33103) in order for it to be classed as an offshore installation. If a vessel does not satisfy both of these conditions it is not an offshore installation and, as long as it is capable of movement across water, it is a ship for the purposes of SED.

The meaning of “standing” or “stationed” in any waters

In Torr and Others v CIR (see EIM33111), one of the appellants’ arguments relied on the suggestion that the Pride South America (PSA) was not an offshore installation because it was neither standing nor stationed when carrying out its well workover and support duties.

The appellants relied on the fact that as the PSA operated in deep water it was not possible to fix the vessel to the sea floor by anchor or hawser. Instead it used dynamic positioning (DP) to maintain its position over a well whilst performing its operations.

The Special Commissioner dismissed this contention as follows -

“I have no hesitation in deciding that the use was while standing or stationed. The New Shorter Oxford Dictionary gives the following meaning for “station”: “1. assign a post, position or station to (a person, troops, ship, etc); place, post. 2. To take up one’s position, post oneself.” It would be absurd to suggest that a ship can only be stationed if it is either secured by anchors or hawsers. A ship can be stationed in deep water. While the context in which the word “stationed” is used is as an alternative to “standing”, the word clearly envisages the ship being substantially stationary, I am satisfied that when dynamically positioned the Pride South America was stationed.”

HMRC takes a broad view of the meaning of “stationed”. For example, whilst working in support of an offshore structure, a vessel may move off from the structure and then back to it, or move around from one side of the structure to another, for weather or operational reasons. Despite these movements, if the vessel continues to perform duties in support of that structure it is regarded at all times as stationed, in the sense of being on station at that structure.

This interpretation was confirmed by the Upper Tribunal in Gouldson v HMRC (UKUT238 (TCC)) a decision published in June 2011 in which the Tribunal Judges decided that:

“… “stationed” does not require a vessel to be fixed rigidly in one immoveable position, but allows of minor movement in relation to a fixed point.”

And the term stationed may be of wider application, if there are two or more structures forming part of an integrated complex. If a vessel moves between these structures in the one complex or station to perform duties at different structures within the one complex, in HMRC’s view the vessel is stationed (on station) within that complex.

Dynamic positioning

It follows from this decision that a vessel which is substantially stationary because of DP satisfies the requirement to be “standing or stationed” in the definition of an offshore installation. Of course a vessel positioned by DP may be subject to some lateral and vertical motion in the water but that is no different from a vessel secured by hawser or anchor.

However, a vessel may use DP when it is underway to maintain a compass heading that may not be in the direction of vessel motion. In these circumstances the DP helps the vessel maintain its progress and navigation but the DP is not intended to keep the vessel substantially stationed.

In other circumstances, DP may be used to maintain a vessel’s position on station (e.g. over a well), which may include some lateral movement, but subject to the length of time that the vessel is stationed in this way (EIM33109), HMRC may regard a vessel in this situation as “stationed” within the definition of an offshore installation. This may include movement of position around an offshore installation by a vessel that is providing services or supplies to that installation.

See EIM33109 for guidance regarding the length of time that a vessel must spend “standing or stationed” to satisfy this leg of the definition of an offshore installation.

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