Important notice with regard to allowable vessels for Seafarer’s Earnings Deduction

We have today received preliminary advice regarding a recent decision by the First-Tier Tribunal (Tax Chamber) issued 18 June 2009 following the case Spowage & others v HMRC which has resulted in a relaxation in the meaning of “exploiting minerals by means of a well” and in particular leads to some vessels being defined as a “ship” instead of an “offshore installation”.

The following is a brief précis of HMRC’s initial announcement.

Following the decision on the Spowage case, where the vessel carries out construction and maintenance duties remote from physical association with the process of producing oil, the duties do not fall within that definition and it follows that the vessel cannot be an offshore installation. On the other hand, extraction, storage and processing of oil or gas are part of that production process and a vessel engaged in any of those tasks whilst standing or stationed in any waters is classed as an offshore installation.

For 2008/09 onwards seafarers who worked on a vessel (e.g. a diving support vessel) involved in duties not physically associated with oil or gas production (e.g. repairs carried out away from the well-head and/or associated sub-sea equipment), will be entitled to Seafarer’s Earnings Deduction as the vessel is classed as a ship.

On the other hand, seafarers who work on a vessel engaged in similar duties to the Pride South America, involved in repair activities associated in a physical sense with production of oil and gas (e.g. working down the well, pumping liquid in the well, removing and placing Xmas tress, constructing manifolds), whilst the vessel is “standing” or “stationed” in any waters, are not entitled to Seafarer’s Earnings Deduction as the vessel continues to be classed as an offshore installation.