Self Employed Tax Issues

[fa2fi]

Hi. I am just wondering if anyone can help. My understanding is that Ryanair pilots are self employed (although supplying their services to an agency and not the airline direct). I've heard that these pilots can offset the cost of their training against what they have earned so they don't pay tax until they make back what they have paid into training.

I appreciate that they are under an Irish system. But my question is; can a British citizen employed by a UK FTO on a self-employed basis offset the cost of their training as a business expense as they start flying and receive a wage?

If anyone could offer me advice or point me to a relevent post on here then I'd be very grateful.

Thanks.
F2F

[ifitaintboeing]

There was an article in the BALPA Log about this a while back, summarised here:

BALPA | Expenses (http://www.balpa.org/getdoc/6f582720-bfd3-4b75-87a8-cdeef18316bc/Expenses.aspx)

Claims for tax relief on training expenses incurred by pilots are usually resisted by the Revenue for failing the “wholly, exclusively and necessarily” test. They argue such expenses are necessary to put the pilot in the position where he is able to carry out his duties, rather than assisting him in the course of carrying out those duties.

The general rule for employees’ expenses: in the performance of the duties (http://www.hmrc.gov.uk/manuals/eimanual/EIM31650.htm)

ifitaint...

[FANS]

HMRC are desperate to keep this door closed, however I'm glad you mentioned Ryanair.

Ryanair pilots are classified by Ryanair and themselves as self-employed and therefore deduct expenses including TR costs. Under IR35, however, they are not self-employed and hence I think it's only a matter of time before this becomes an issue. It should be flagged by other airlines, as not having to pay employers NI, as well as sick pay/pensions etc etc is a major cost saving.

Back to your case, the first question is are you really self-employed per IR35?

[long final]

Ryanair pilots.

Are you able to work for other companies selling your pilot services as and when you please? If not, not self employed. I am amazed this situation has continued for as long as it has.

Self employed pilots have the responsibility to meet the self employed criteria, and if they don't, they will be liable. Ryanair, I suspect, would not rush to their defense.

I don't blame the Ryanair guys, but they are, IMHO, putting themselves in a tricky spot and I have always felt one should never upset the taxman - the penalties can be severe.

[mutt]

If they are self-employed, who covers the insurance liability for flying the aircraft?

Mutt

[goldeneaglepilot]

It would seem the question of claimable employee expenses is well covered by HMRC (from HMRC EIM31650 ) :

Therefore, to satisfy this test, the expense must be incurred in actually carrying out the duties of the job. It is not enough for the expense to be relevant to the job, or to be incurred in connection with the duties of the job. Nor is it enough if the expense only puts the employee in a position to start work or keeps the employee qualified to do the work. Expenses that are incurred in preparation to carry out the duties of the employment or as training to carry out the duties of the employment are not deductible.


Equally the test for IR35 seems well defined by HMRC


Employed or self-employed?

In order to answer this question it is necessary to determine whether the person works under a contract of service (employees) or under a contract for services (self-employed, independent contractor). For tax and NICs purposes, there is no statutory definition of a contract of service or of a contract for services. What the parties call their relationship, or what they consider it to be, is not conclusive. It is the reality of the relationship that matters.
In order to determine the nature of a contract, it is necessary to apply common law principles. The courts have, over the years, laid down some factors and tests that are relevant, which is included in the overview below.

As a general guide as to whether a worker is an employee or self-employed; if the answer is 'Yes' to all of the following questions, then the worker is probably an employee:

Do they have to do the work themselves?
Can someone tell them at any time what to do, where to carry out the work or when and how to do it?
Can they work a set amount of hours?
Can someone move them from task to task?
Are they paid by the hour, week, or month?
Can they get overtime pay or bonus payment?
If the answer is 'Yes' to all of the following questions, it will usually mean that the worker is self-employed:

Can they hire someone to do the work or engage helpers at their own expense?
Do they risk their own money?
Do they provide the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?
Do they agree to do a job for a fixed price regardless of how long the job may take?
Can they decide what work to do, how and when to do the work and where to provide the services?
Do they regularly work for a number of different people?
Do they have to correct unsatisfactory work in their own time and at their own expense?

See: HM Revenue & Customs: Employment status (http://www.hmrc.gov.uk/employment-status/index.htm)

[FANS]

•Do they provide the main items of equipment they need to do their job


Yes - the RYR pilots must bring their own B737!!

We have a chancellor talking about tackling tax avoidance schemes, and yet RYR are operating in this manner which is known to everyman and his dog, or are the pilots non-UK tax resident!?

[goldeneaglepilot]

Personally I hope that the matter is looked at by HMRC, having witnessed first hand the implications for a company and its previously self employed contractors of IR35 enforcement it does seem very unfair.