There was recently a meeting held at Gates & Partners with various individuals who are well informed of the subject. Here is a briefing:-
You expressed an interest in notes from the recent seminar at our offices where we discussed VAT on aircraft.
Thank you sincerely to all members of the panel – Martyn Fiddler (Martyn Fiddler & Associates), Dean Carey (Constable VAT Consultancy LLP), Guy Lachlan and Marc Bailey (BBGA).
Please see short summary below – if anyone would like any further information, please let me know.
In a nutshell the rule change will mean that all aircraft (i.e. not just those over 8,000kgs) will be subjected to VAT and the VAT will apply depending on the end use of the aircraft. If the end use is by an airline operating chiefly on international routes then a 0% exemption will apply. In all other cases, the new rate of 20% will apply for UK imports.
We still have no clarity as to what customs will view as an “airline” in the business jet world although the general consensus is that business jet operators will qualify.
In summary:
1. Business jet operator buys aircraft and charters it out – 0% exemption
2. Purchaser buys aircraft for own personal use – 20% rate
3. Purchaser buys aircraft and charters it out – potentially 0% exemption or if not, the VAT can be reclaimed through a leasing and charge back structure. The business use must be a genuine business use and not as a way of disguising private use. The general consensus is that there would need to be some degree of serious marketing to third parties and records kept of genuine charters. Use will most likely be assessed in terms of mileage, passenger numbers and values charged over a decent period of time.
4. Purchaser buys aircraft and operates itself with own flight operations department etc – again, potentially will be regarded as an “airline” and may fall within the 0% exemption
The Banks have confirmed they will consider financing the VAT payment, particularly where there is clear indication that the VAT will be refunded.
All sellers of aircraft should insist on certification from the end buyer which confirms the intended use of the aircraft. If they are not satisfied that the intended use falls within the exemption, then VAT should be charged. We expect the guidance notes to give some insight on the wording this certificate should take.
It is open to buyers to import through countries with lower VAT rates (e.g. Luxembourg) – once an aircraft has been imported into free circulation in the EU, that certification should be valid in all EU countries. It is very important to check this as France in particular can be very fussy as to what it will accept. If they do not accept the aircraft was properly imported, they can seek to apply their own VAT charge.
Finally, as much care should be taken on exporting the aircraft out of the EU as on import.
Hope the above helps.
M_W