Divers and Diving supervisors working in the exploitation and exploration of minerals (oil and gas) in the UK territorial and continental shelf waters, have their income from employment, which would otherwise be chargeable to tax under Part 2 of ‘Income Tax (Earnings and Pensions) Act 2003’ (ITEPA 2003), exempt under Section 6(5) of ITEPA 2003 and assessed for Income Tax purposes as the carrying on of a trade in the United Kingdom, by virtue of Section 15 of the ‘Income Tax (Trading and Other Income) Act 2005’, IT(TAOI)A 2005.
Section 15 IT(TAOI)A 2005 excludes any other commercial diving activities not in the exploitation and exploration of minerals, such as diving activities specifically related to inland or inshore work, or any other offshore diving work such as salvage or working on renewable energy sources and carbon capture.
This concession allows divers and diving supervisors to offset against their income from exploration and exploitation activities in the UK only, those expenses which are ‘wholly and exclusively’ for the purpose of the trade.
In addition ‘Section 16 of IT(TAOI)A 2005’ applies where a person (diver and diving supervisor) carries on any oil-related activities as part of a trade, those activities are treated for income tax purposes as a separate trade, distinct from all other activities carried on by the person as part of the trade.
This means the income of a diver and diving supervisors in oil and gas related work cannot be counted as part of any other diving trading activities, profits or income such as an inland inshore self employed sub-contractor diver.
The Law regarding Training Courses
Training courses would not normally be deemed allowable as tax relief for expenditure by the proprietor of a business which gives him new expertise, knowledge or skills, as per “Humbles v. Brooks (1962) 40 TC 500”, and HMRC Expenditure on training courses BIM 35660. www.hmrc.gov.uk/manuals/bimmanual/BIM35660.htm
Where the income of a Diver and Diving Supervisor is derived from UK exploration and exploitation diving activities, they can claim Capital Allowances by virtue of section ‘20(1) of the Capital Allowances Act 2001’ as their income from employment is taxed as a trade.
This allows the Diver and Diving Supervisor to claim a deductible cost against the profits of a trade, for those training courses which are a mandatory requirement under UK law or an industrial requirement by the company or client, when those training courses come within the meaning of ‘Know How’ in ‘Section 452 (1) (b) of the Capital Allowances Act 2001’, which applies to any industrial information or techniques likely to assist in working a source of mineral deposits.
The following examples are a list of training which will meet the statute requirements of industrial information or techniques likely to assist in working a source of mineral deposits, within the meaning of ‘Know How’ in ‘Section 452 (1) (b) of the Capital Allowances Act 2001’, providing these are ‘wholly and exclusively’ for the purpose of the trade.
- HSE Surface Supplied Diving Course with Offshore Top Up or equivalent (note * 1)
- Saturation Bell Diving course
- IMCA Tools module
- CSWIP Phase 7 schemes, 3.1U and 3.2U
- Other underwater inspection schemes such as Lloyds Diver Inspector
- Specialist NDT training for Underwater use. i.e. Ultrasonic or Radiography
- Welder training in wet welding techniques
- Subsea rigging and lifting
- Underwater Explosives
*1 The cost of the ‘HSE SCUBA’ and ‘HSE surface supplied’ or equivalent alone will not qualify, as the diver cannot work offshore in the UK with such qualifications, only inland inshore work. But if these courses were completed prior to undertaking the Offshore Top Up, the costs can be offset at a later date when the diver is engaged in UK exploration and exploitation diving activities.
The following examples are a list of training courses which DO NOT qualify under ‘Know How’ in ‘Section 452 (1) (b) of the Capital Allowances Act 2001’and NO tax relief is allowable on the initial training expenditure cost.
- Health and Safety First Aid at Work
- IMCA Diver Medic
- IMCA Air or Bell Supervisory training
- IMCA ALST
- IMCA Diving technicians training
- OPITO Offshore Survival and Fire-fighting
- OPITO MIST Training
- Any Safety related training courses
While no tax relief for expenditure is allowable on those training courses which do not meet the ‘Know How’ criteria, when the diver or diving supervisor is engaged in UK exploration and exploitation diving activities.
If the diver or diving supervisor is required to attend training (refresher training) to update any expertise etc, which the proprietor (diver and diving supervisor) already possess, as per “Humbles v. Brooks (1962) 40 TC 500”, the expenditure is allowable and is normally regarded as ‘revenue expenditure’ and will be deductible if it satisfies the ‘wholly and exclusively’ for the purposes of the trade.
The following examples of refresher training will be allowable as a revenue expense.
- CSWIP Phase 7 schemes, 3.1U and 3.2U
- Other underwater inspection schemes such as Lloyds Diver Inspector
- Specialist NDT training for Underwater use. i.e. Ultrasonic or radiography
- Welder training in wet welding techniques
- Health and Safety at Work First Aid
- IMCA Diver Medic
- OPITO Offshore Survival and Fire-fighting
- OPITO MIST Training
- Any Safety related training courses that requires refresher training
UK resident Divers and Diving Supervisors working outside the UK
Divers and Diving Supervisors who are resident for tax purposes in the UK and who are engaged outside the UK, which will include the North Sea Sectors of Holland, Denmark, Germany and Norway, will be subject to those earnings under Part 2 of ‘Income Tax (Earnings and Pensions) Act 2003’ (ITEPA 2003) as an employee, irrespective of whether they are employed by a UK company and subject to PAYE or receive the income gross or net of local income or employment tax from an overseas employer and shall not be allowed to offset the cost of any initial or refresher training against their taxable income.
Section 336(1) of the Income Tax (Earnings and Pensions) Act 2003 prohibits offsetting the cost of any initial or refresher training, as the expense has to be incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
A number of recent cases “HMRC v Decadt, (2007)BTC 586”, “Perrin v HMRC, (2008) Sp C 671” and “Consultant Psychiatrist v HMRC (2006) Sp C 557” have confirmed the difficulties, in particular, the training (while an obligation on the employee) has generally been considered to be undertaken in addition to (rather than as part of) the principal duties of the employment.
The Amounts Claimable by the Diver and Diving Supervisor
The amount divers and diving supervisors engaged in exploration and exploitation activities on the UK continental shelf only, can offset against their trading income for training courses that are ‘wholly and exclusively’ for the purposes of the trade will depend on whether the training course is an initial course or a refresher training course.
1) For the initial courses undertaken within the meaning of ‘Know How’ in ‘Section 452 (1) (b) of the Capital Allowances Act 2001’. The actual percentage of the initial cost (original course fee) will be determined by what is allowable in ‘Capital Allowances’ within the current finance act and will vary from year to year depending on what is in the chancellors budget. Any cost remaining from the percentage deducted from the initial cost in the first year of the claim, is written down over the remaining years that the diver or diving supervisor continues to work in the UK sector of the North Sea. No actual percentage figures are provided in this document for the reason that the percentage figures for the first year claim, the subsequent years writing down allowances of the remaining cost and cessation allowances if any capital cost remains, will vary from year to year and individual divers and diving supervisors should seek advice from a certified accountant or their local HMRC office on the exact percentage of the cost they can claim annually as a ‘Capital Allowance’.
2) For the refresher courses undertaken, the entire cost (100%) is allowable as a revenue expense in the fiscal year, in which the refresher training is undertaken.
