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HMRC internal manual

Employment Income Manual

Tax treatment of seafarers: salvage awards

A salvage award is apportioned between the owners and the members of the crew of the salving ship on a basis that varies with the particular circumstances of each salvage. Salvage awards are fully taxable. 

The award may be agreed on the salvor’s behalf with the owners of the vessel but increasingly seafarers are seeking to negotiate their own settlements, sometimes through the Courts.

Where an award is paid to the owners of the salving ship for distribution among the crew the owner should include each employee’s share on the deductions working sheet and operate PAYE on it. Where the Courts make an award it is usual for it to be paid over to the salvor’s solicitors. In such cases PAYE will not be operated so the individual seafarers will each be responsible for including their share of the award in their self assessment returns. Where examination of the accounts of a ship owner shows that a share of an award has been paid to the owner, he should be asked to supply an analysis of the payments made to seafarers unless:

  • such a return has already been made to South Wales Area, Cardiff (Compliance), or
  • the awards have been included on the deductions working sheets and taxed.

If a return is then made the appropriate Area offices should be notified of the circumstances of the awards and a note of the facts passed to South Wales Area, Cardiff (Compliance).