You should be aware that its incredibly difficult to get an aviation company registered for vat, our totally legit helicopter charter company (an LLP) was made to jump through many hoops including a visit to our offices by HMRC.
Evidently this is variable because in 2002 I had no trouble at all. The registration was zero trouble. It was only when I submitted a claim for the purchase VAT on the plane (£35k) that a guy from Customs & Excise phoned and wanted to see a business plan, which I supplied (it was a properly set up aircraft rental business) and he was happy.
Don’t even go there, they will assess you for benefit in kind for the full value of the availability of the aircraft
This depends on the detail as I wrote previously.
There is a guidance note on the HMRC website (I am sure I linked to it here before) which says BIK is not assessable if the asset is made available to outsiders at the same rate as to the business owner.
In reality HMRC inspectors pretend that defence doesn’t exist and like to assert that it is valid only if the business was set up to make a profit.
So, it’s all fine if the business makes a profit and sends corporation tax payments to HMRC. But in reality it won’t because unless you get loads of customers, the capital allowances will ensure it doesn’t make a profit. And if you do get loads of customers you won’t want to fly the plane yourself because it will be shagged!
If you set up a Ltd Co and you are the only pilot, and you don’t rent it out and pay for everything out of your pocket (i.e. reimburse the Ltd Co expenses out of your own pocket) then there is no basis for BIK. All pilots have to be shareholders. And VAT registration won’t work because there is no possible business being created. Loads of Ltd Co syndicates exist and run on that basis.
As an aside, VAT registration is pointless in the long term because while you get back the purchase VAT (a one-time benefit) you have to charge VAT on all sales, which makes rental 20% (or whatever) more expensive for ever. In the old days you would import the plane via Denmark which made VAT reg even more completely pointless.
There are other defences against BIK (e.g. contractually barred from access to the aircraft) as I mentioned above and they do work (otherwise e.g. all employees of a company which owns a bizjet would be taxed on BIK on it) but they aren’t consistent with the usual objectives in this context.
Best thing, for a sole pilot, is to own the plane yourself and bill the company for any business usage, which you can do as a % of the total operating cost of the plane pro-rated to the % of airborne time done on business trips. For the business usage, keep the VAT receipts and submit them to your company via your expenses so the company can reclaim the VAT. This is simple and legit. It can be done with cars too but most people use the HMRC fixed mileage concession (XXp/mile or whatever) with cars because they make a nice profit out of it, especially with a diesel car 
Rental is HARD. I wrote about it here before but basically those who rent are by definition looking for a committment-free way to fly. Most of them will be nice but some will be crooks and shysters and cheats of all sorts. I had a dozen or so renters, including two instructors who both fiddled the fuel totaliser to reduce the fuel billing. I caught them via the EDM700 logs, after seeing unrealistic flying times reported. One had a fake ATPL (he had only the IMCR and a BCPL) and had to vanish after some “flying” with under-age girl students (sex between instructors and students is a big thing in flight training; two FIs I flew with got students pregnant). The other lied about being an IRE; like many FIs he did have an IR but it was lapsed. Then you get pilots who proudly say they navigate only with a map and a stopwatch and want to take the plane to France, never get notams, can’t read tafs and metars, and yeah will fly back on Ryanair after busting some TRA and getting the plane confiscated. The rental scene is packed with incidents like a guy who started with a towbar attached (not in my plane but next door’s), took a big chunk out of the prop, chucked the towbar into some tall grass, went for a flight, and was never seen again. And you get a lot of throughput in pilots, because they move on all the time. I lost one good one when his wife dropped a sprog and ruled he cannot fly anymore because it’s risky (that was his story). So you need to do a lot of check flights. It’s simply not worth doing… if you want reduced flying costs, set up a straight syndicate.
I do think that this is handled very differently in different countries. In Sweden, a Ltd company is more or less by definition doing business and so is entitled to VAT registration.
Peter wrote:
As an aside, VAT registration is pointless in the long term because while you get back the purchase VAT (a one-time benefit) you have to charge VAT on all sales, which makes rental 20% (or whatever) more expensive for ever.
I don’t see that. The company can deduct VAT on all its operating costs, fuel, maintenance, landing fees etc.
True, but where is the benefit to you the pilot?
The VAT just passes through. And you get extra admin, and sometimes don’t get VAT receipts so that VAT can’t be claimed back but still has to be billed on the sales invoice.
HMRC’s problem is that you claim all the substantial Vat on (in our case leasing the aircraft) maintenance, hangarage etc etc and want to see some vat being collected and paid.
If you can prove you are actually running this as a business then its ok, BUT, and this may be a recent development, they want a lot of proof that this is in fact the case, I suspect most pilot/owner schemes would fail this test.
Because we do use the heli for some private flying we were advised to use the LLP vehicle to avoid any BIK challenge.
I should also add that the VAT registration difficulties were despite the fact that the LLP is part owned by our main company which has been vat registered for 20+ years and pays over GBP 2 million in vat each year ! Go Figure
HMRC’s problem is that you claim all the substantial Vat on (in our case leasing the aircraft) maintenance, hangarage etc etc and want to see some vat being collected and paid.
It will be collected and paid allright – by you the pilot
Rendering the exercise pointless in the long term, for the private flying scenario.
they want a lot of proof that this is in fact the case,
If that was the whole story it would be impossible for any startup to register for VAT, which is clearly not the case. IME, they don’t mind the VAT registration itself. What triggers flags in their computer is anomalous transactions: claiming back the VAT on the aircraft purchase is a blindingly obvious one. Nowadays loads of things will do that; I’ve had VAT inspections because e.g. we made an unusually large purchase of chips from the USA which resulted in a big import VAT reclaim.
I suspect most pilot/owner schemes would fail this test.
Well, all would fail the test of being a real profit making business, but it’s a chicken and egg argument.
we were advised to use the LLP vehicle to avoid any BIK challenge
That’s probably good advice. But the hardest thing in all this is that most accountants don’t understand the types of business which HMRC really hate i.e. anything to do with sailing, flying, horses and brothels. Most accountants prefer a nice cosy working relationship with HMRC and when they see an all-guns-blazing attack on one of their clients, they will throw that client to the lions.
After all these posts I have still not seen anyone reporting issues with a traditional syndicate where all pilots are shareholders in a Ltd Co and where there is no VAT registration.
And if there is only one pilot, there is no point in putting the plane in a company of any sort.
The HMRC website is very clear. Boats and planes are treated with scepticism. Assumption is you are trying to reclaim VAT on a hobby. You need to establish otherwise.
These days Peter you won’t even get registration until you have so established.
Peter wrote:
True, but where is the benefit to you the pilot?
The benefit is that the capital needed to operate the aircraft is reduced by the VAT amount.
That is however just a loan from the VAT people which you end up repaying for ever.
And if the company is wound up / closed, then you have to repay the VAT on the then current market value.
I guess it depends on one’s long term or short term outlook.
That is however just a loan from the VAT people which you end up repaying for ever.
It depends. How much VAT is paid for usage is not necessarily related to the amount reclaimed. And if the aircraft is sold to another business in Europe outside the UK or any buyer outside Europe HMRC never receive the VAT.
That is also true; however there are two distinct markets for used aircraft: “plus VAT” and “no VAT” and they command different prices.
If a VAT registered individual or a corporate body sells a plane, it must add VAT, and this pretty well restricts the market to other VAT registered bodies (because the plane is some 20% more expensive). You are right Jason that if you export it outside the EU you don’t charge VAT on it but those markets are very small (unless it’s a TP/jet or similar high value).
How much VAT is paid for usage is not necessarily related to the amount reclaimed.
It depends on the detail… in most realistic scenarios you (the end user pilot) will pay back all the VAT saved and more, over the next X years. The case where it goes in your favour is where the business is losing substantial money, but then your VAT returns will be continually reclaiming VAT and this will soon trigger a VAT inspection and an examination of the business.
