Judgment summary
This appeal concerned Michael King's entitlement to Seafarers' Earnings Deduction (SED) for the tax years ending 5 April 2020, 2021, and 2022 (1). HMRC had disallowed his claims by closure notices dated 1 October 2024 (2).
The central issue was whether the Q7000, the vessel on which Mr King worked, was a 'ship' for the purposes of Chapter 6 Part 5 ITEPA 2003, or an 'offshore installation' within the meaning of section 1001 ITA 2007 (4). Both parties agreed the Q7000 was a ship as a matter of general law, but disagreed on whether it was put to a 'relevant use' or was standing or stationed in waters (4).
The Tribunal heard evidence from Mr King, whom it found to be an honest and reliable witness (6), together with Daily Progress Reports detailing the Q7000's activities (23).
Background
Mr King was employed by Helix Offshore Crewing Services Ltd as a services/intervention co-ordinator during the relevant tax years, carrying out all his duties on board the Q7000, and continues to work on the vessel (8).
The Q7000 is a semi-submersible, dynamically positioned vessel described as a well intervention unit, manufactured in Singapore, which began operations in Nigeria in the tax year 2019/2020 (10). It is owned and operated by companies in the same group as Mr King's employer (11).
The Q7000 is self-propelled and capable of a wide range of functions in the offshore oil and gas market, including activities that would constitute a 'relevant use', but it is not capable of exploiting minerals itself (12, 13, 14). The only activities it has carried out to date are decommissioning (including restoring the seabed) and well intervention, and only at wells that had permanently ceased production and where the production platform or FPSO had already been removed (15).
No well the Q7000 worked on was ever returned to production, and the purpose of its work was to enable safe abandonment, remove associated infrastructure and return the seabed to its original state (17). The Q7000 maintains its position using a class 3 dynamic positioning system rather than fixed anchoring, latching onto a wellhead for between 1 and 37 days (20, 21).
Core dispute
The parties agreed the Q7000 was a structure and a ship as a matter of general law, but disputed whether it was put to a 'relevant use' under section 1001(3) ITA 2007 and whether it was standing or stationed in waters under section 1001(4) (4, 35).
HMRC contended the Q7000 was an offshore installation because it was exploiting mineral resources by means of a well within section 1001(3)(a), on the basis its work was carried out at or near the wellhead and closely associated with the production process, and because dynamic positioning meant it was stationed or standing in water (33).
Mr King contended the Q7000 was not a structure in the relevant sense as it moves about, that decommissioning and well intervention after cessation of production were not exploitation of mineral resources by means of a well, and that a well which had ceased production was no longer a 'well' for the purposes of section 1001 (34). He also argued that dynamic positioning technology should now be seen as a navigation aid rather than a means of keeping a vessel stationary (34).
Court findings
The Tribunal found that the Q7000 is a structure, since section 1001(5) expressly includes a ship or other vessel within the definition (36, 66).
The Tribunal found that the Q7000 has not been, is not, and will not be put to a 'relevant use'. Having the functionality to carry out a relevant use was not itself sufficient; what mattered was actual use (40). The Tribunal found that the Q7000's decommissioning and well intervention activities were undertaken only after permanent cessation of production, after the production platform or FPSO had been removed, and were directed towards abandonment and preventing future extraction, not towards exploitation of mineral resources (46, 50, 54).
The Tribunal rejected HMRC's argument that decommissioning of a single well within a still-producing field amounted to exploitation, holding that section 1001(3)(a) requires the relevant use to be tested by reference to the specific well being worked on (51). Even assuming decommissioning was licence-mandated, the Tribunal found the activities too far removed from production of oil to constitute a relevant use (49, 50).
There was no evidence of any plan to change the Q7000's activities in future, and the Tribunal found on the balance of probabilities that no such change was planned (43).
On the separate question of whether the Q7000 was stationed or standing in water, the Tribunal found that it was, when latched onto a well for decommissioning and well intervention (other than seabed clearance), applying the 'substantially stationary' test from Torr as approved in Gouldson (62, 64). This finding did not alter the outcome given the conclusion on relevant use (65).
Outcome
The Tribunal concluded that the Q7000 is a structure, has not been, is not, and will not be put to a relevant use, and is stationed or standing in waters due to dynamic positioning, but as it is not put to a relevant use it is not an 'offshore installation' within section 1001 ITA 2007 (66).
As a result, the Q7000 is not prevented from being a ship for the purposes of Chapter 6 Part 5 ITEPA 2003, and Mr King was entitled to Seafarers' Earnings Deduction for the years in issue (66). The appeal was allowed (67).
Major issues / areas of contention
- Whether the Q7000 constituted a 'structure' for the purposes of section 1001 ITA 2007.
- Whether the Q7000's decommissioning and well intervention activities amounted to 'exploiting mineral resources by means of a well' under section 1001(3)(a) ITA 2007.
- Whether a well that has permanently ceased production remains a 'well' for the purposes of section 1001 ITA 2007.
- Whether the Q7000 was 'stationed' or 'standing' in waters given its use of dynamic positioning rather than fixed anchoring.
- Whether the future-looking limb of the 'relevant use' test applied where there was no evidence of planned change in the Q7000's activities.