Any Wannabes out there with Limited Companies?

[monkeyboy]

I'm just about to set up a limited company - as I work in the IT Contract market - and the accountant that I'm thinking of using has suggested that as long as I can prove that my flying is towards a career and not as a hobby then I should be allowed to claim some of the cost back as expense or maybe even the VAT.

Now, being a law-abiding citizen who's had the fear of the taxman put into him, I can't help but wonder if this is strictly legit.

Are there any other wannabes who have fulltime contract jobs - as well as pilot aspirations - who have limited companies that claim back some of their cost towards their flying training?

Is this a subject that nobody is going to own up to?

With NVQ down the swanny and VAT being imposed on training in the UK, but not in countries like Spain, surely there must be others out there who have stumbled across this?

MB :)

[ 03 November 2001: Message edited by: monkeyboy ]

[Avenger]

Your accountant is quite correct, however you have to be able to prove that the flying costs are towards a professional career. Hence post PPL ground exams and training for the GFT/IR and any professional ratings, medicals and admin costs could be tax allowable. Hours building post professional exams or GFT could also count if properly recorded, however the tax office would have a strong case for argueing that pre GFT or professional exams flying, if paid for by your company, was in fact a benifit in kind and hence a tax burden on you.Away days to LFT etc are always questionable.
If you joined a syndicate for flying, the detailed breakdown of your membership costs, showing, fuel, insurance and repairs would make for a good tax allowable case.
If your claims are reasonable, and you show some flying as pleasure with no costs being claimed, then you should be ok. Should you seek to overclaim they now have aviation experts in house..
In short, you have to be in a position to start professional training, i.e PPL passed, and be reasonable.
Good Luck.
(ex tax man)

[Mile_Hi]

I am in a similar situation having just completed my training. I asked my accountant the same question who said that it was not possible as my company (which is only me) is not currently involved in aviation. Could Avenger or someone else comment on that? Alternatively could I just change the focus of the company which is currently involved in Automotive R&D to Automotive R&D AND Aviation. Thanks

[Polar_stereographic]

My advice on this is to tread with extreme caution. The revenue have a big problem with anything to do with aviation, and unless you are squeeky clean, they will give you a hard time. I know, as I made that mistake once with a dodgey accountant at the time.

I've a diferent one now, and I'll ask the question, but I bet I know the answer.

Mile_Hi, where you down at PAT in Sept?


PS

[Quidditch Captain]

Regarding VAT reclaim, the regulations state that VAT can only be reclaimed on purchases which are directly related to the incoming revenue on which VAT is charged.
In other words if you have a company providing IT services (such as m/boy), then purchases on flying training are not directly related (ie IT/flying), so no VAT reclaim is allowed.

[Mile_Hi]

Thanks a lot CTM you just ruined my day with YOUR rules!

Polar_S
I was spreading myself about in September but I certainly didn't "wrong" anyone on the South Coast recently. I finished my IR with 4forces/Bonus and then a performance paper at Bristol g/s then I dropped into PATS I think but only to find where SFT was located for their MCC course which was not bad. Did hear good things said about PATS though. So I don't think you would have met me.

Seriously though thanks CTM for the info

[foghorn]

I had a long discussion about this with several accountants as I am in a similar position (although I have my CPL/IR now).

The advice of all of them was not to do it as the Revenue is very keen on abuse in this area, since the sums of money involved are substantial.

MrSpock has pointed out why you can't reclaim VAT on the training and Customs and Excise are very firm with VAT abuse, in fact they're worse than the Inland Revenue.

As for the income tax, you would be taxed personally on the cost of the training as a benefit in kind unless you could show that the training was either a necessary day-to-day cost for the company or was an investment that in some way enhanced its earning potential. If your company is not already involved in aviation, the former is impossible to prove and the latter would be very hard to prove. This is because you would benefit personally (ie. become directly employable by an airline/flying school) more than the company would (with an off-chance of freelance instructing through the company).

Put it this way - could you afford the hassle, stress and the legal costs involved in a major disagreement with the Inland Revenue? They can be very heavy handed with this sort of thing as many contractors caught by the IR35 tax have found out. At best you would end up with a bucket load of hassle for little gain, it could be much worse.

Of course big companies and Tony's cronies get away with this sort of thing all the time without the Revenue batting an eyelid, but then we're just little people...

foggy.

[ 07 November 2001: Message edited by: foghorn ]

[Polar_stereographic]

Excelent summary foghorn, pretty much exactly my understanding.

I crossed paths many moons ago with the horrors of the IR on an aviation related matter, and rest assured they have never heard of any human rights, plough in both feet first, and don't try an hide behind an accountant as in my experience they will drop you like a stone and wash their hands in the process.

The problem with any dealings with the IR is that they are always right and it's up to you to prove them wrong at your expense. The other thing is the amount of time it takes. In my case it dragged on for nearly 7 years. It could take them 6 months to reply to a letter, and if they get their way, you'll pay interest for that too, plus penalties.

It's an interesting point that nearly all cases that they take to court they loose. Might explain why the big fish get away with more than little fish.

Tread carefully.

PS

[flickoff]

I do like this sort of thing as defending those that do it it helps keep my own a/c in the air!

Claiming tax relief on training costs is quite clear cut really, but because the IR do not apply it evenly across the board, those that get away with it form the basis of folklore suggesting just about anything goes. Without getting anoraky about this, you as an individual can only claim any kind of tax relief on training costs that are wholly exclusivley and necessarily incurred in the performance of your duties. That is to say essential for each and every holder of your type of job to undertake in the performance of their job, not just something you fancy, or might be useful for the future, and most definitley not something that merely puts you in a position to do the job. For example, the cost of an IR is not a cost in the performance of a F/O duty as it is a prerequisite of being a f/o; the revalidation however may be a different story if he had to pay it himself.

Forming a limited co to funnel all these expenses through does not change the basic rules, but brings up the question of relief against what? IF the coy has no income there is no tax relief to have. If you channel your otherwise salary through the co, you open up a whole new can of worms in the shape of benefits in kind, and even the dreaded IR35 charge - it is not exclusive to IT consultants.

If you have another business and fund your flying cost through it there may well be scope to reclaim the VAT, and even get a measure of relief on the genuine business trips, but any training would almost certainly be a benefit in kind taxable on you, although you would get a corporation tax deduction on the costs, but this could be at half the rate of the BIK tax. There is also the extra cost of class 1A National Insurance to pay.

If you do go down this route, expect a fight, don't expect to win, and read up on interest and penelaties. However, if your accountant says it's OK, check his professional indemnity cover, do it anyway and sue the ba**sta**d when you get the tax bill!

[monkeyboy]

Thanks chaps.
I can see I've got a lot of checking up to do.
Thanks for all the wise words etc...

MB :)