I agree that in the end VAT registration doesn’t help much unless you are a real company running a business.
Peter wrote:
That is however just a loan from the VAT people which you end up repaying for ever.
Peter wrote:
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.
I really don’t see how this can be unless VAT works differently in the UK (which I doubt considering the EU).
Suppose I have a “steady state”, where I pay the company exactly the amount it costs to operate the aircraft. The company can reclaim VAT from all its expenses, but at the same time it has to pay VAT on all its income, i.e. my “rent”. The VAT it has to pay and the reclaimed VAT will cancel out exactly. Thus I am not “repaying for ever” and also the company will not be “continually reclaiming VAT”.
The only case where you could lose money is if the company has expenses with are not subject to VAT or are that taxed at a lower VAT rate than the rate for rentals.
Airborne_Again wrote:
Suppose I have a “steady state”, where I pay the company exactly the amount it costs to operate the aircraft. The company can reclaim VAT from all its expenses, but at the same time it has to pay VAT on all its income, i.e. my “rent”. The VAT it has to pay and the reclaimed VAT will cancel out exactly. Thus I am not “repaying for ever” and also the company will not be “continually reclaiming VAT”.
In the UK you wouldn’t get away with that. It is not a business it is a cost recovery exercise.
Quite a lot of syndicates do it, however. They got their VAT reg many years ago and they just carry on.
IME it’s not a problem to carry on once you have started. In my business, 1978 onwards, I have not found Customs to be aggressive (others have). It is the Inland Revenue I have found to be thoroughly crooked.
It’s financially pointless (in the long run) and there is a fair bit of admin which the poor bugger in charge of finances has to do, while the rest of the syndicate typically free-wheels 
Regarding rental and Ltd companies (or other structures) it’s important to think about insurance. An incorporated owner who issues invoices headed ‘rental’ is clearly a commercial venture and this type of insurance is likely to cost more than an owner acting in a personal capacity. The problem is that many (most) brokers don’t quibble about an incorporated owner and quote private rates, which could come unglued in the event of a claim. This can apparently be overcome by avoiding certain words like ‘rental’, or having members who have an equity share or other interest in the owning company. Bit of a minefield and needs to be discussed with the broker.
I hear that some people found companies and buy their airplane under the name of that company. How is this beneficial?
I can imagine it has something to do with liability plus it might be easier to change owners i.e. shareholders.
Does the company have to have some real business? If you already have a company, should you create a new one just for the ownership or take it on the existing one’s name? Can expenses be accounted in the company?
How about if the airplane is rented to other pilots at cost price (no profit)? I would expect this to be easier (legally) with private ownership.
My aircraft was acquired under my company’s name for the purposes of future aviation-related business. In particular, my accountant has confirmed that using the aircraft for the purpose of acquiring/maintaining the qualifications necessary for that future business is a legitimate company expense (at least as long as I have specific business plans for that).
My understanding is that buying privately you pay all of VAT up front. Buying with a company you can have the VAT back and then pay it with each hour flown when the company rents the aircraft to yourself.
If buying for example 200k EUR aircraft for personal use, it may not be worth the overhead of paperwork, book keeping, etc. If you’re getting a jet, you would buy with a company.
Also think of resale. The next owner may want a VAT invoice.
The scenarios are complicated but people do company ownership for various reasons e.g.
Apart from the tax issues, the downside of company ownership is that you lose most of the consumer legislation protection. In simple terms an individual cannot be bound by an unfair contract but a corporate buyer can be. I believe e.g. Diamond’s separate engine and airframe contracts would be unfair on an individual owner.
Peter wrote:
protect syndicate shareholders from the joint liability implicit in a shared ownership
I recently talked to a lawyer and he was of the opinion that a company doesn’t give you a significantly different protection than a club structure, in Switzerland.
