Here are my thoughts, which may need revising:
Public, or Commercial, Air Transport is defined in the ANO as being where valuable consideration is given (or promised) for the carriage of passengers or cargo on a flight (it actually says in the aircraft on that flight, but you know what I mean). Aerial work is anything else for which valuable consideration is given, including instruction, but, if only the pilot gets paid, it is a private flight. The definition also covers anyone or anything that may be carried free on that flight, not being employees of an air transport undertaking that may be operating it (although it looks as if it's worded otherwise, company directors and anyone working on behalf of the CAA, such as Authorised Persons and TREs, are employees for this purpose).
Thus, if you carry a passenger (say, a friend) on a check flight who is not an employee or a director of your Company, it will be regarded as Public, or Commercial, Air Transport, even though valuable consideration is not promised or given. If the valuable consideration allows a particular person to fly an aircraft, then that is also Public Transport (unless it's being bought on HP or a conditional sale agreement, or is a single-seater below 910 kg). Presumably this is meant to cover self-fly hire, or maybe trial lessons, since the phrase used is "fly the aircraft" rather than "fly in the aircraft". If valuable consideration is not given, or the aircraft is a club glider with club members on board, it is a private flight.
However, these clauses are the only ones to affect the average professional. Otherwise, in broad terms, you are allowed to win prizes in air races (up to certain limits) and recover direct costs and a pro rata contribution to the amount of hours flown every year if you go to air shows and the like. If a payment is made to a (registered) charity (with CAA permission) that allows someone (maybe a prizewinner) to fly, that is a private flight. Equal contributions to the direct costs of a flight borne by the pilot if up to four persons (including the pilot) fly in an aircraft are exempt, but direct costs do not mean HP payments, insurance, hangarage..... There must also have been no advertising for that flight, except in the confines of a flying club, in which case all passengers (over 18) must be members. It also helps if the pilot is seen not to be employed as such (this situation is what anyone else would call "cost-sharing"). A similar situation exists where a pilot reclaims direct expenses paid out on behalf of an employer. There are other exemptions, such as joint or company owned aircraft (that is, chargebacks between companies and subsidiaries). Remunerated parachute dropping (and positioning for it) is regarded as aerial work.
In fact, a flight is private for racing, contests or flying displays, positioning for them or returning from them to the usual base, if the valuable consideration does not exceed the direct costs and a contribution to annual costs, based on the time flown, or prizes not above £500 per race or contest, except with permission in writing from the CAA. Such prizes do not constitute remuneration for services as a pilot. The same applies to a registered charity, not the operator of the aircraft, and with permission in writing from the CAA.
The flight is also private if the only valuable consideration is a contribution to the direct costs of the flight otherwise payable by the PIC (i.e. expenses), with no more than 4 people carried and bearing equal portions of the cost, and no advertising or promotion done beforehand, except inside a flying club, and the people concerned are all members.
Valuable Consideration
Let's have a closer look at the words "valuable consideration" as an example of not-so-good drafting. The word "consideration" means money or something of money's worth that is more than merely nominal. It is legal expression referring to something that is used to bind a contract, even the chocolate wrappers sent in to a manufacturer to obtain a free gift.
The word "consideration" by itself would have been enough, but somebody saw fit to add "valuable" in front of it, which changes the position somewhat, because now everybody has to rush around trying to decide what that particular word means and subsequently how valuable should consideration be to qualify for the ANO?
The actual definition there comes from the 19th Century, which reads:
"any right, interest, profit or benefit, forbearance, detriment, loss or responsibility accruing, given, suffered or undertaken pursuant to an agreement, which is of more than a nominal nature."
Try this instead:
"Money or money's worth, which is more than merely nominal (i.e. chocolate wrappers), including the release of debts, meaning money or anything capable of being turned into money, possibly including some services which cannot."
The real problem with this, though, lies with insurance. You may (or may not) know that there is no such thing as a "contract" of insurance, because you are betting; in this case, that you crash your aircraft before a certain date. The insurance people, of course, are betting that you don't (or is it the other way round?). The trouble is that insurance companies are well known not to pay if they can get away with it, so if they can prove that you were doing illegal public transport, you may well find that your insurance is invalid as well, not to mention being caught for third-party liability in some cases. Anyway, back to the subject. The ANO (Art 6) says that an Air Operator's Certificate is needed for all flights that may come under the definition of public transport:
"an aircraft registered in the United Kingdom shall not fly on any flight for the purpose of public transport, otherwise than under and in accordance with the terms of an air operator's certificate granted to the operator…."
Article 6 was originally Article 3A of the ANO 1960, and was inserted as an afterthought to it to cover AOCs that would be unenforceable during the time gap until section 1 (2) (a) of the coming Civil Aviation (Licensing) Act 1960 came into force on 30 March 1961. This section was later repealed by the 1972 Act, so from that time the ANO could no longer legally make provisions for an AOC with enforceable terms. In other words, an AOC is not made by statutory instrument - the 1982 Act says that only statutory instruments can establish enforceable terms; in other words, no enforceable law (that is, by criminal proceedings) can be made below the level of a statutory instrument, which of course an AOC is not. AOC terms are laid down by the CAA, which cannot issue SIs.
By the way, the term "operator" above has been held by leading counsel to include the pilot (any person with the management for the time being of an aircraft is regarded as being the operator). Reference to Road Transport Acts shows that if it had been intended that a "driver" was not to be an "operator", then the proper wording was available for aviation.
Actually, the imposition of public transport conditions is only permitted by the enabling Act (of the ANO) where the aircraft is used for a commercial, industrial or gainful purpose (specifically Sect 60 (3) (f)). What it says is that:
"An Air Navigation Order may contain provision as to the conditions under which passengers and goods may be carried by air and under which aircraft may be used for other commercial, industrial or gainful purposes".
Quite a mouthful, but the use of the word "other" in conjunction with the Rules of Interpretation of Statute infers that "conditions" may only be imposed when aircraft are being used for gainful, etc. purposes. As these rules are meant to be enforceable by criminal proceedings, they become penal situations, and as such must be strictly construed in accordance with the enabling statute. So what may be relevant as to what is or is not Commercial Air Transport is not the presence of any consideration, but, if there is, whether the aircraft is being used for a commercial, industrial or gainful purpose. Therefore, all you really have to do is pin down who the user is and see what his use of the aircraft is to see whether Commercial Air Transport or Aerial Work conditions might apply.
Since, in most circumstances, light aircraft are chartered to a sole user, most "charter" flights could in fact be called private flights (if it were not for the ANO) unless the aircraft is actually being used during flight for commercial, industrial or gainful purposes.
The user (that is, the hirer) is using the aircraft for his own purposes (unless buying and selling is going on in the back) and the "operator" is the pilot. Whoever hires out the aircraft to the user could be held to be their agent in respect of maintenance and all the other things needed to keep the aircraft flying. If passengers are being carried for separate fares, on the other hand, then the aircraft is being used in that way by the person with the right to the money collected. But beware! The terms of an AOC could be enforceable if made as the terms of an Air Transport Licence. If an aircraft is being used for the carriage for reward (er, sorry, valuable consideration) of passengers or cargo, the CAA may apply air transport licensing even if the aircraft is not being used for anything resembling Commercial Air Transport or commercial or other gainful purposes.
All that being said, what about the situation where you're asked to do a job and you're not sure what's going on? Do you feel up to actually asking for a certificate to say a flight is not Commercial Air Transport? This is plainly impractical, so you need to know a few ins and outs to protect yourself (please note the intention is not to enable you to fly illegally!).
A workable CAT flight (ANO definition) must have the following:
An Air Operator's Certificate issued to "the operator"
The crew must have current licences (e.g. CPL/ATPL) and be type rated, base/line checked, etc. in accordance with the operator's Operations Manual (indeed, the whole flight must be conducted under it).
The aircraft must have a (current) Transport Category C of A or equivalent, Certificates of Maintenance Review and Release to Service, Technical Log (with Deferred Defect Sheet), Passenger Briefing Leaflets and all legally required equipment (Fire extinguishers, placards, etc.).
You may be able to get around these requirements by ensuring that the person hiring the aircraft does so with a separate contract than the one he hires you with, and you'll be better off if you can also prove that you weren't paid, or at least you were an employee of the hirer's organisation (if you do this, you may have to show that the enabling Act only permits an Air Navigation Order to make different pilot licensing provisions according to whether the person concerned is actually employed or merely engaged in a flight crew capacity). You could also get base and line checked by a proper company and put it through their books, but don't forget you must use their Ops Manual and other documentation.
Finally, you could resort to drastic measures and form a company for a short time with nothing in its memorandum and articles of association about gainful use of aircraft or hiring them out by the hour. There is a Common Law rule that you cannot buy or hire from yourself, which is the basis upon which co-ownership groups and non-profit members clubs are run in every walk of life. However, the ANO says that any agreement between such organisations, or members of them (even within the same group), in respect of a situation where valuable consideration would normally be expected, would be considered as if it had been given anyway. This is notwithstanding any rule of law as to such transactions; in other words, the Common Law purports to be specifically overridden, yet it is not clear from the enabling Act that the ANO is permitted to do this, that is, put Common Law into abeyance.
An unincorporated non-profit members' club can be created for a specific purpose or occasion and exist for one flight or a day only, being dissolved once it has served its purpose. They should pay for their own operating costs to avoid the inference of valuable consideration. For instance, it should not be too difficult for some parachutists to form a club for the day to hire an aircraft.
Any good?
Phil