Benefit in Kind tax

[IO540]

Briefly, this is a tax on assets owned by a limited company, calculated as a benefit equal to 20% of the purchase cost (or market value?) of the asset, each year. Quite a potential problem for groups operating an aircraft inside a limited company.

I know a number of groups have done individual deals with the Revenue on this. I also found a post here by "overclock" of 12th January 2004 suggesting that UK AOPA did a deal with the Revenue to exempt aircraft groups from BIK tax, subject to certain exemptions. I found this in an old note which I still have. I am not a member of AOPA - does anybody know any more details on this deal?

The standard Revenue web page which has been fairly widely relied on is

http://www.hmrc.gov.uk/manuals/senew/SE21004.htm

which is pretty clear, but the Revenue likes to wash their hands of this page, saying it applies only to a business which can be proven (retrospectively, obviously) to have been set up to make a profit. This conflicts with the "AOPA deal" mentioned above.

[Whirlygig]

Benefits in kind are applicable to employees of any business; not just limited companies. Therefore, the shareholders of a limited company are not employees and I wouldn't have thought the BiK legislation was even applicable.

Cheers

Whirls

[Mike Cross]

What's BIK to do with whether or not it's a Limited Company? You can get clobbered for BIK on any business entity, not only that, if you are VAT registered then any supply to yourself is subject to VAT as well. There's no point in setting up a UK Ltd Co to try and save on tax or VAT because you only invite investigation. Where it would score is in limiting your liability. In the main, providing there has been no fraud or other illegal trading the shareholders liability is limited to the value of their shares. However the corollary of this is no-one in their right mind gives credit to a Ltd Co whose total capitalisation is ten shares of £1 each.

It helps if you go back to the origin of companies, which arose as a means of financing expeditions to foreign parts. It was a "Company of Adventurers" that would be set up to finance an expedition. Subscribers would buy shares in the company and when it was wound up at the conclusion they would share in the proceeds in proportion to their shareholding. If a dividend was declared during the life of the company that would also be distributed in proportion to shareholding.

Edited to add that Whirly's right, but then shareholder benefits are also taxable.

[bookworm]

but the Revenue likes to wash their hands of this page, saying it applies only to a business which can be proven (retrospectively, obviously) to have been set up to make a profit.

Is that from your own correspondence or something else?

[IO540]

It's a case I am pretty familiar with.

It's likely going to go to the general commissioners for a ruling.

I believe that the inspector in question offered one concession, which is that the business is exempt from BIK if all the pilots own the aircraft between them. This may be the AOPA concession I referred to.

The Revenue page referred to, which is an internal guidance note for their inspectors, doesn't mention this. I suspect a lot of people have done individual deals, and obviously they won't be advertising them.

If this is upheld, it's obviously worrying for groups that operate on the basis of somebody purchasing a plane, and then a number of others renting it freely. In a way, the Revenue has got you by the goolies; if your customers are at an arm's length then you will get done for BIK; if OTOH they are all co-owners then it's obviously not a real business anyway.

It's possible this particular inspector is just being aggressive, of course. This is standard Revenue procedure these days. Jump on somebody really hard and try to get a settlement of some sort, then close the case and move on to the next file. Racehorses, yachts and planes are obvious targets, and politics of envy is never too far away.

[Whirlygig]

What sort of aircraft group is this? Benefits in kind taxation is only applicable to employees. I really don't understand this scenario and cannot see any problem. There may be other taxation pitfalls but I can't see how BiK is one of them.

If a company wants to "give away" goods/services to its customers then that is disallowable for corporation tax and would probably attract VAT anyway (i.e. pay over the VAT that would have been collected had the customer paid a market price).

A company pays corporation tax on its profits. Employees pay benefit in kind tax (income tax) on any benefit received from their employer. A customer is not a employee.

Cheers

Whirls

[IO540]

A rental customer is safe, yes, but the poor sod who runs the company, who bought the aeroplane (and who is the Director, generally) is exposed to BIK.

What the Revenue really don't like is the common enough case where the business owner is also a private pilot. Again, this is not the law; the mere fact that the asset is available to the Director (or the employee) triggers the BIK liability. And of course many or most businesses are run by individuals who happen to have a personal interest in the activity - a bit mad otherwise to go into a business which you hate. But it makes a great deal of difference to how provocative the Revenue regards it. They don't like what to them looks like a "hobby business".

When I find out more I will post more details. In the meantime, back to my original Q: does anybody know what deal AOPA struck with the Revenue?

[Whirlygig]

Firstly, there are two situations; one where a group of people set up a limited company purely for the purposes of running their own aircraft and the second where a company/business (say, a construction company) owns an aircraft as one of the directors holds a PPL.

In the first case where say, four chaps set up a limited company to buy and aircraft for £10,000; each stumping up £2,500. This will be the share capital of the company (unless they want them as loans but little odds). Each shareholder will pay for fuel and presumably pay an hourly amount into a maintenance reserve. In this scenario, each shareholder is paying what it costs (in effect) to fly the aircraft and so there is no benefit; what are they getting for “free”?

In the second case, the aircraft is financed completely from the profits of this fictitious construction company and the director uses the aircraft to fly himself around on holiday and maybe home. It is very little different to having a company car. This is tax allowable on the company but taxable on the employee as a benefit in kind and, quite frankly, deserves to be. However, should this PPL-holding director use the aircraft to fly customers around as a PR exercise (and, for argument’s sake can we’ll not get into the issue of whether his licence allows it), then that will be allowable on both the company and director as long as a legitimate business case can be demonstrated.

It sounds to me, in the example given, that someone is running an aircraft for hire but not contributing themselves to the running of it. Yup - tax him - he's getting something for nothing. We won't worry about his AOC!!

Cheers

Whirls

[S-Works]

You one of Blairs "Babes" then Whirls? :p

Thats what I love about socialist government, tax the self starters to pay for the illegal imigrants and the 14 year old girls who can't keep there legs closed. Lets not make everyone equal by making the losers improve themselves lets just take it off those who have made the effort......

[IO540]

Whirlygig

I am pleased to inform you that you have substantially mis-speculated on the actual situation.

BIK arises through a limited company (not a partnership) owning an asset to which an employee or a director has access for personal use. That is the requirement for BIK to arise, nothing more. The person doesn't have to actually to make any use of the asset.

Some of what you wrote is common sense but unfortunately it isn't the legal position.

There are some published exemptions, some being listed on that URL I posted.

[Slopey]

I thought that as a standard PPL holder, one of the conditions is that you are specifically prevented from flying an aircraft owner by your employer? So even if you were taxed on it, you could'nt fly it as it's owned by the company?

[Justiciar]

Benefits in kind are non salary benefits which are taxed in the hands of an employee or, in the case of a limited company, a director. Any employee, whether they work for a limited company or a partnership, is liable to taxation on a benefit in kind. Obviously an employer who is not a limited company does not have directors but this then can make it difficult for a proprietor, e.g. a sole trader, to get an aircraft's operating costs allowed as an tax deduction when assessing the taxable profits of the business. The difference in treatment of a director arises from the fact that a director is a separate legal personality from the Company of which he is a director. This consideration does not apply to unincorporated bodies, such as partnerships. Some of my staff get taxed on benefits in kind, though I do not trade through a limited company.

I don't believe you can have a BIK charge arising unless you are an employee (or director). I suspect that for it to arise with a director they also have to be an employee - most directors in small companies are also employees of the Company.

[Slopey]

I thought that as a standard PPL holder, one of the conditions is that you are specifically prevented from flying an aircraft owner by your employer? So even if you were taxed on it, you could'nt fly it as it's owned by the company?

Actually - I've just re-read CAP393 Para 161(1) & (2) which would seem to indicate that it would be possible to fly a corporately owned a/c as long as there was no money changing hands aside from direct costs, and that any person carried is under no legal obligation to be carried.

(further edit)

See:
http://www.caa.co.uk/docs/122/summary_of_public_transport.pdf
5.4 Exception No 4 – Recovery of direct costs (motor mileage) (Article 161)

So you can recover the direct costs as expenses for travel - it does'nt mention if the company owns the aircraft however?

Could someone enlighten me? Just because in a few years time there's a fair chance I'd go this route. And if it's permissable, I'd be subject to BIK tax as I'm a director of the company?

[potkettleblack]

The 2nd paragraph of the link you posted to the IR website implies to me that as long as you are not getting a better "deal" than anyone else in the group then no BIK arises?

Failing that and subject to your insurance arrangements you could let someone trustworthy outside of your group fly the aircraft for a few hours at the same effective rate as what you pay and then you can prove to the inspector that joe public gets the same deal so there is no preferential treatment from your scheme of arrangment.

As to the form of the entity, as others have said above it shouldn't matter whether it is a company, partnership, sole trader or anything else inbetween. If tax on BIK's is payable then it doesn't matter how you go about it. Think of your local plumber who might have a partnership with the wife and lets the lads use the van or car for private use. Assuming they declare it correctly then BIK's would be payable.

[Whirlygig]

You one of Blairs "Babes" then Whirls?
Absolutely not - I think you'll find that the BiK "rules were a Thatcherite invention - politics doesn't come into it - people dreaming up fancy schemes for tax evasion does!

I am pleased to inform you that you have substantially mis-speculated on the actual situation.
If I have substantially misspeculated, I apologise. I DID say that I was finding it difficult exactly HOW this situation could arise. And still do. Which of my two cases applies in your posts? If the second, The asset could easily be made "not available" by having the key locked away and a stipulation in the director's contract that the aircraft was not for personal use. If the first, then each "director/shareholder" should be contributing equally.

I suspect that if this case has gone to the Commissioners then there is a lot more to it than meets the eye and is not being told here.

Cheers

Whirls

[A and C]

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

If your company owns an aircraft there is no BIK if you use the aircraft only for company business, but this must be strictly business use onlyif your wife gose along in a spare seat for a little shopping then you are at risk of BIK tax for her travel.

The best way to keep things simple is to rent the aircraft from your company if you want to fly a non-business trip but the rental price must reflect the real operating cost per hour if it fails to do so the tax man may have a nasty surprize for you in the form of a large BIK bill as they don't like it if you try to take the p**s and will drop the BIK bill on you and let you fight it if you can !

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business.

I cant see the flying hours as a BIK, after all if I am moving an aircraft to a maintenance base if I as a director of the company can't move the aircraft then I would have to pay someone to do it and cost the company yet more money.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.
The VAT man was a little unsure of by business at first and before I got the VAT back on the aircraft there was an investigation of how my business worked but as soon as it was seen that this was a true business and not some sort of tax fiddle the whole attitude changed and they have been most helpfull.

[Lister Noble]

Very simple.
Ask your accountant.
If he is in doubt then ask the IR/Customs bods.
Better to be right than reap a very nasty and expensive surprise.
Over the years I have always played it straight with my BIK's (both as normal employee and director of my own company, and it's worked out well in all cases.
Lister:)

[IO540]

So far nobody here has answered my original question..... it was a very simple question.

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

Incorrect.

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business

That should work but in the case I refer to it is being challenged.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.

Ah, but how do you define the bit in bold? Think about it!

[IO540]

So far nobody here has answered my original question..... it was a very simple question :ugh:

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

Incorrect.

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business

That should work but in the case I refer to it is being challenged. That was an aircraft rental business, set up on professional advice, checked out early on by both the Revenue and the C&E inspector, and run completely above board for a number of years. Everybody flying was invoiced at £X/hr+VAT, access booked on equal terms via a booking website. Of course an accountant is involved, but he is not a pilot and doesn't know about some deal which AOPA (or somebody else) might have done with the Revenue.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.

Ah, but how do you define the bit in bold? Think about it!

What to you is a genuine business which has perhaps not attracted as many customers as you might have wished, is to somebody else a sham.

The Revenue like to make up their own definitions as they go along. The law exists to stop them doing that. That Revenue BIK website is pretty clear.

[Whirlygig]

IO540, from what you have told us, something doesn't quite gel. What are the real facts of this case because, as I see it, there must be more to it if what you are saying is true. If you are saying that commonly accepted taxation law is not the case, then can you give us the situation that has led to this?

An asset "available" for use can easily be got round! One company for whom I worked had a strict clause in employment contracts that the company vans were not for private use; hence the operatives did not get taxed on the benefit in kind. They could have been driven for private use I suppose but the Inland Revenue (as they were then) were quite happy with our contracts. If an employee was cuaght out in a van after hours they were disciplined.

If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind.

Cheers

Whirls

[Islander2]

An asset "available" for use can easily be got round! .......If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind.Whirls

From bitter personal experience, Whirls, that is untrue when it comes to 'luxury' company assets like aeroplanes and yachts.

Agreed there can be no benefit in kind if: a) the asset is not made available by the company for your personal use; and b) you don't actually use it in a personal capacity! The problem arises when some personal use is made ... whereupon the Revenue will assess the b-i-k not on the 'cost' of your actual usage but instead on the 'opportunity value' of its year-round 24/7 availability to you. Any monies paid by you to the Company for 'rental' of the asset can of course be netted-off their b-i-k calculation.

My direct experience and that of others I know is of the Revenue starting with a truly extreme position but being prepared to negotiate down from that. Where they end up is, I believe, very much at the discretion of the individual Inspector (or, at least, it used to be). I saw no evidence to suggest my Inspector was working to quantitative guidelines, but that was quite number of years ago and maybe things have changed.

[Whirlygig]

Agreed there can be no benefit in kind if: a) the asset is not made available by the company for your personal use; and b) you don't actually use it in a personal capacity! The problem arises when some personal use is made ... whereupon the Revenue will assess the b-i-k not on the 'cost' of your actual usage but instead on the 'opportunity value' of its year-round 24/7 availability to you. Any monies paid by you to the Company for 'rental' of the asset can of course be netted-off their b-i-k calculation.

Not being funny here but isn't that what I said?

Cheers

Whirls

[IO540]

Islander2 is right on the money, as far as reality is concerned:

My direct experience and that of others I know is of the Revenue starting with a truly extreme position but being prepared to negotiate down from that. Where they end up is, I believe, very much at the discretion of the individual Inspector (or, at least, it used to be). I saw no evidence to suggest my Inspector was working to quantitative guidelines, but that was quite number of years ago and maybe things have changed

Things have not changed. They still go for the throat, and then might negotiate downwards. I am not an accountant but the story I hear time and time again is that the settlement bears more relation to the proximity of the inspector's retirement, how many points he has accumulated on his bonus scheme, etc than to any facts of the case.

There is a particular difficulty for anybody who is a Controlling Director: he has access to the asset 24/7 by virtue of being such. Having a contract preventing him from having access is a bit silly, even if this is effective with normal employees.

This is obviously a worrying scenario for many groups. I will make sure a more detailed update is posted when I know more. Current indications are that this is a particular inspector being aggressive, rather than an official national policy of going after certain types of asset.

Edit: I did find out the answer to my original question. The AOPA deal applies to groups only i.e. where all flyers own a piece of the asset. This inspector did indicate that the Revenue web page posted earlier applies in such a situation.

[SkyHawk-N]

Absolutely not - I think you'll find that the BiK "rules were a Thatcherite invention - politics doesn't come into it - people dreaming up fancy schemes for tax evasion does!

It doesn't just come down to BIK rules, it is how they are interpretted and enforced. Unfortunately the IR/HMCE 'hounds' were released, well and truly released, by this current government. Whirlygig, 'tax evasion' is a VERY strong term to use for business practices which have been and are completely legal under corporate rules and law. It's unfortunate that the IR/HMCE doesn't like it and dreams up ways of interpretting the law to suit themselves.

Another example of this is dividends being issued by small businesses. It's ok for LARGE companies to do so, but SMALL companies? that's another matter, even though they run under the same regime.

[Whirlygig]

It doesn't just come down to BIK rules, it is how they are interpretted and enforced. Unfortunately the IR/HMCE 'hounds' were released, well and truly released, by this current government. Whirlygig, 'tax evasion' is a VERY strong term to use for business practices which have been and are completely legal under corporate rules and law. It's unfortunate that the IR/HMCE doesn't like it and dreams up ways of interpretting the law to suit themselves.

Another example of this is dividends being issued by small businesses. It's ok for LARGE companies to do so, but SMALL companies? that's another matter, even though they run under the same regime.
Eh? :confused:

My quote was directed at someone who decided they knew what my politics were and not a general statement. Again, if people are going to say that HMR&C are doing this and that, then please give details so that a) others can understand the relevancy of their situation (if it's true) and b) gives me a fighting chance of checking the relevant legislation.

Cheers

Whirls

[A and C]

I think that the tax man has a very good idea if what is "real trading" and also has a good idea of what is a tax fiddle.

As I said above I lease aircraft to a flying club, the club has day to day control of the aircraft, the only time that I fly the aircraft is to and from the maintenance base. I wanted to use one of the aircraft to do a rating renewal so in this case I rented the aircraft from the club.

I find it very hard to find any way that BIK taxation could apply in this case, when the business was started the VAT people had a very hard look at my business. It was quite clear that they suspected the whole thing was set up as some sort of tax fiddle but very quickly came to the conclusion that this was not so.

I have had no further visits from the tax or VAT people but may be this is because the lady from the VAT found the airfield "rather noisy".

[SkyHawk-N]

Eh? :confused:

My quote was directed at someone who decided they knew what my politics were and not a general statement. Again, if people are going to say that HMR&C are doing this and that, then please give details so that a) others can understand the relevancy of their situation (if it's true) and b) gives me a fighting chance of checking the relevant legislation.

Cheers

Whirls

Firstly I think Bose-X was joking.

I believe anyone who runs a small business (I am involved with IT myself) will understand where my posting is coming from. In general, the HMR&C have been tasked with getting as much tax out of everyone as they can. Things like BIK, dividends, expenses will all come under scrutiny by them as these result in 'lost' revenue to them. Tax evasion is used by those in the know and the majority of this will never be recovered. Us lesser beings are 'low hanging fruit' and we recieve a lot of the HMR&C attention.

As for checking the relevant legislation, there's loads of it and it's getting worse each year!

[Whirlygig]

As for checking the relevant legislation, there's loads of it and it's getting worse each year!
I know! I work with it every day! :}

Cheers

Whirls

[Justiciar]

There does seem to be a lot of confusion here over what a benefit in kind is. It cannot apply to a group owned aircraft, whether the group is unincorporated or a company, since in either case the members/shareholders are bearing all the costs of operating the aircraft. There is therefore no benefit to be taxed.

If the group leases the aircraft to a flying club or similar to reduce its overheads than there is a potential tax charge on normal principles, in the event that the lease income exceeds the operating costs for the year. That is unlikely in most situations. Were it to happen then having a company, with a corporation tax exemption on the first £10k of profit, might be an advantage over a group, whose members would pay tax at their individual rates on any profit from the operation. However, this scenario is so unlikely that it is probably irrelevant to most groups.

However, if you, or a company of which you are director and/or an employee seeks to run an aircraft for its business, offsetting or trying to offset the cost of doing so against gross profit of the business, then the Revenue will look at benefits in kind which you as the employee or director enjoy by having an aircraft at your disposal. Even if every flight is for business I have heard that the Revenue argue that there is a personal benefit by virtue of it enabling the pilot to retain currency on the aircraft or even simply enjoy the pleasure of flying at low cost. This then affects your personal taxation quite dramatically.

[Maxflyer]

I have heard that the Revenue argue that there is a personal benefit by virtue of it enabling the pilot to retain currency on the aircraft or even simply enjoy the pleasure of flying at low cost. This then affects your personal taxation quite dramatically.
Wouldn't that mean that all instructors are receiving benefits in kind as their currency is constant by nature of their work? Similar to having a fully expensed company car, although I doubt most instructors take the ir PA28 or Cessnas to and from home!:)

[Justiciar]

Maxflyer:

You are right and your example shows the ultimate false logic of the Revenue's position. I know of one chap who's business plans have been seriously hampered by the Revenue's attempt to charge him with the full cost of his company aircraft. He flies all over Europe strictly on business. The revenue argument was that there was a benefit in kind, not only because he could keep current on his aircraft (a twin) but because there was likely to be a private element to his trips. They suggested he might do a bit of sightseeing or having a social meal out!!

There is no logical reason why a flying instructor flying his employer's aircraft and deriving pleasure from his instructional flights should not be charged a benefit in kind whereas a business man flying his employers aircraft for business is. What about, say, a gof pro who uses his employer's golf course of teaching and derives not only personal satisfaction but the opportunity of refining his skills? The list is endless.

I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts.

[Whirlygig]

Perhaps one of the differences would be licence type? An instructor with a CPL may be considered to be less likely to be deriving pleasure from the flying and, as a commercial pilot with a qualification specifically designed to earn money from flying, it may be considered that currency is not an issue.

The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.

Cheers

Whirls

[IO540]

Perhaps one of the differences would be licence type? An instructor with a CPL may be considered to be less likely to be deriving pleasure from the flying and, as a commercial pilot with a qualification specifically designed to earn money from flying, it may be considered that currency is not an issue.
The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.

Whirly, I don't want to sound impolite but am I right in that you might be a trainee or junior accountant, or perhaps somebody working on the periphery of the profession? But probably not somebody who routinely works with corporate clients well above the builder/decorator grade, working with them in their various run-ins with the Revenue and C&E?

What you wrote, about not being allowed to have fun when running a business, and having to get a CPL to avoid the accusation of enjoying flying, is an absolute scream although I am sure you did not mean it that way. It cuts to the heart of the way the Revenue think. If they had their way, they would shut down (or stick extra tax on) any business whose proprietor is (or looks like he is) enjoying himself.

I've been in business (manufacturing) for many years so inevitably have picked up quite a lot of bits and pieces on legal and financial matters. One cannot run successfully without that knowledge; one cannot get anywhere while sticking all receipts into a bin liner and then chucking it at an accountant to sort out at the year end like many builders etc do.

But the more I hear about this case, and others, the more I discover that the rules are actually very vague, that the Revenue quite literally doesn't like the idea of anybody getting enjoyment out of their business, that politics of envy is very much alive and kicking here, that some inspectors are way out of line and get away with it only because their targets eventually cut a deal, and they attack certain types of businesses with great gusto hoping to get a settlement of some sort which doesn't have to bear any relation to the facts of the case.

As Justiciar points out most targets of enquiries or investigations do a private deal with their local inspector. Hardly suprising since the next step outside the Revenue apparatus is the High Court which costs four figures plus per day and only the biggest players (say, some dispute over the tax treatment on £100M's worth of a certain type of biscuit you have been making for the last 10 years) will bother.

This "make the target sh1t himself for a few months and then throw him a last minute deal" policy so much beloved of the present day Revenue ensures that few clear national rules come into the public domain. It's all very well for some people to pontificate that "one can immediately tell if a business is a sham" etc etc but actually one can't do that except in the most obvious cases, and the Revenue do not restrict themselves to those, by a very long way.

Of the tax evaders, only a mug is going to run an obvious sham. Everybody else will be more clever at it, and is going to be very close to something bona fide. So the Revenue can pick a lot of real businesses apart. Whereas if he had clear published rules then everybody would know what is allowed and what is not.

Finally, if "you" earn £10k p.a. then it's quite possible that "you" regard anybody earning say £100k p.a. (and flying a plane too :yuk: ) as a crook who "must be" running a sham business. That is very much a feature of the present-day British mentality, too.

That's my bit for defence of private enterprise :)

[Whirlygig]

I am a Chartered Accountant qualifying in 1991 and have worked in Public Practice as an auditor and tax accountant for 8 of those years. I was also the Finance Director of a £125 million turnover company. I have PM'd you with my name and membership number in case you don't believe me and I earn a damned sight more than £10k a year. Your comments are churlish!

My comment about the CPL goes back to A and C's remarks about "trading". If a pilot has a CPL then it was be more prima facie evidence that this "pilot/director" is in business rather than trying to get a hobby paid for through a company.

I asked you for the facts of this case about which you keep referring. You haven't given them. I am interested from a professional point of view. I have spent a long time protecting clients from getting into "scams" and "schemes" where there is a chance that it could come back and bite them on the bum.

I await your comment (and apology?) with interest.

Cheers

Whirls (not Whirly!)

[potkettleblack]

That was a bit below the belt given that Whirls and a number of other folks have given you an abundance of free tax advice and in return have been furnished with vague and incomplete facts concerning your arrangement.

You bang on about some deal that AOPA have done but in order for that opinion to be relevant to your circumstances then you need to contact them directly and avail yourself of the minute detail. As I am sure you are aware the binding opinions given by HMRC are given on the basis of the facts provided to them and their interpretation of the relevant tax acts to those sets of circumstances. The fact of the matter is that if you want some water tight advice then you need to lay your cards on the table and write to the IR seeking a binding opinion. If I was in your position I would engage a decent tax practitioner with experience in the aviation sector rather than doing it yourself.

[dublinpilot]

There is no logical reason why a flying instructor flying his employer's aircraft and deriving pleasure from his instructional flights should not be charged a benefit in kind whereas a business man flying his employers aircraft for business is. What about, say, a gof pro who uses his employer's golf course of teaching and derives not only personal satisfaction but the opportunity of refining his skills? The list is endless.
I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts

I know this is straying off thread a little, but this idea of using something for business, but also deriving an incidental or theoretical personal benefit from it, is very similar to the requirement that all business expenses must be "Wholly & Exclusively for the purposes of the trade".

There may not be much case law about how this duality affects BIK, but there is plenty affecting the Wholly & Exclusively rule.

One that immediately springs to mind was the guy making business trips to the city, and his wife came along too. She went shopping while he visited clients. When finished his business he picked her up and drove back down the country. Revenue claimed that the trip was partly for his wife's pleasure, and not wholly & exclusively for the purpose of the trade. The courts rightly in my opinion, threw that out. There are plenty more case surrounding this area.

While not directly relating to BIK, can help to give guidance where the only benefit derived is pleasure while doing your job.

dp

[Vedeneyev]

So it seems quite a few of us have come across the vagueries of HMR (& HMC) in the course of following CAA recommended practice of operating a/c through a limited company.

So much so that I guess some of us have engaged professional advisors (probably after the first official broohaha), who in my experience prove to be equally vague about the specific personal, corporate, tax and liability issues concerning aircraft operation, no matter how ninja they are as accountants on the whole.

My question is, as a community, and since most aircraft operations work on a similar basis, does anyone know of any practice specialising in such areas, or can anyone recommend any advisors who've 'been there' and 'done that'?

(btw I don't!)

[Justiciar]

is very similar to the requirement that all business expenses must be "Wholly & Exclusively for the purposes of the trade".

I quite agree. I think the Revenue do themselves an appauling disservice by not exercising some common sense and fairness. These areas are not black and white. They should be capable of distinguishing between a legitimate business using an aircraft, say, for business and one which is a scam. There does appear to be an element of the Inquisition in all this, with some Inspectors being quite resentful of someone who has the funds to run an aircraft, is skillful enough to fly it themselves and is clearly making a success of their lives.

[IO540]

My apologies, Whirls

This thread got a bit out of hand. My original Q was on the AOPA deal, and perhaps any other deals that may have been done in the years gone by.

It was never my intention to write tons about this particular case - this is a completely unsuitable forum for that, for a number of reasons.

Thank you all for your input.

[Islander2]

Not being funny here but isn't that what I said?

Cheers

Whirls
Not being funny, either, but NO, that's specifically not what you said!

As I quoted, you actually said:"If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind."

And, as I said from my direct experience, that is categorically not the Revenue's position. Unless, that is, you would accept that the cost of 25 hours private use of an aeroplane per year equates to 20% of the accumulated capital cost of the aeroplane plus 50% of the annual fixed costs plus 100% of the variable costs for those 25 hours ... as in my case, where I was threatened with it being taken to the commissioners if I didn't agree to a benefit-in-kind of around £1,000 per hour (for my limited private usage) for a single-engine piston aeroplane despite paying 'normal' aircraft hire charges to the company for that usage!!

The aspect of the legislation that you are ignoring is summed up in the Inspectors letter to my advisors: "Sub-section 5 requires no more than that the asset is placed at the employees disposal. There is no requirement that the asset should be used."

[IO540]

There is no requirement that the asset should be used

That's exactly right.

There are various defences to this, otherwise everybody working in a company that owns a bizjet would get taxed on 20% of its value! For employees, company rules and an employment-contractual ban is one. For Directors, especially controlling ones, it's harder. It's a lot harder if some private use is in fact desired; then a booking website is a key ingredient, and it gets quite messy.

But, as has already been said, the arrangements used by individual cases are settled in local deals so everyone is going to get a different treatment depending on which Gestapo officer they get.

A lot of people who own a company plane cut a flat rate deal with their local inspector so that e.g. 75% of their flying is on business, and they have to repay the other 25%.

Probably the cleanest way to do a combined business+private situation is:

Buy the plane in person, via Denmark (zero VAT and no need to be VAT registered to reclaim the purchase VAT), own it yourself, and get the company to reimburse you for the appropriate % of the total cost of operating the plane, according to the % of business hours flown. So if e.g. the plane cost £20k for the year to run (incl depreciation, annuals etc) and 75% of airborne time was on business flights, the business can repay you £15k.

You can't invoice the firm for VAT so the firm will not be able to claim back any VAT on that £15k. However, the firm can buy fuel and aircraft parts, pay for maintenance, etc, to the value of that £15k and it can reclaim VAT on all of that.

One needs to be able to support every "business" flight, obviously, with evidence that it was a real customer/supplier visit etc. Just like with a car.

I have the above from an accountant; hope it's right. If so, there doesn't appear to be any way the Revenue can challenge this.

Another advantage of the above is that no rental is involved so it is OK to do it with a private CofA G-reg. Or an N-reg of course.