What Direct Costs means is interesting.
In the latest ANO, available as CAP393.PDF, Article 129 states
‘Direct costs’ means, in respect of a flight, the costs actually and necessarily incurred in connection with that flight without a view to profit but excluding any remuneration payable to the pilot for his services as such;
In a CAA document entitled Summary of Public Transport (intended to explain some bits of the ANO; I have a copy but I am sure it is at caa.co.uk somewhere) it says
Direct costs are those incurred directly in relation to a flight (e.g. fuel)
However there is no doubt that the direct costs of a flight are
(1) Fuel
(2) Cost of 50hr check divided by 50
(3) Cost of 150hr check divided by 150
(4) Cost of engine overhaul divided by the full engine TBO
(5) Cost of prop overhaul divided by the full prop TBO
and a few other things like that; all of these relate directly and inescapably to airborne time. Yet the CAA doesn’t like anything other than fuel, it appears. I wrote to them for clarification but they never answered, instead sending me the above summary document.
The meaning of “direct costs” is relevant to the case where an individual X owns a plane Y PRIVATELY and does a business flight. The business probably cannot reimburse him for more than the “direct cost”.
But there is a way around this. The key is to make sure the direct cost to the pilot is the entire cost of the flight.
The obvious way to achieve this is to rent the plane in from somewhere; the direct cost is then the full cost of the rental and you can get that back from the business without contravening any rules.
Similarly, it can be done if X has two companies:
C1 - owns the plane
C2 – X’s main business
If X flies privately, C1 invoices X (and X can then do the normal sort of PPL cost sharing if he wants)
If X flies on business of C2, C1 invoices C2.
If somebody else (Y) rents the plane, C1 invoices Y
The above is standard practice, and differs from renting a plane in from a flying school only in that X is involved in both companies.
The remaining option
If X flies on business of C1, C1 invoices C1 i.e. nobody invoices anybody
is interesting but I can’t see why it should not be allowed. Views?
There are advantages in owning the plane in a company separate from X's main livelihood, especially if the plane is being rented out.