Group formation - is a company a good idea?

[Taildragger55]

I'm sure I remember a thread a while ago.
A friend believes we could claim VAT back on a kit by forming a company.
I suspect there would be many strings attached.
What's the general opinion on company versus an unincorporated group?

[Sassenach]

You can VAT register whether you are an incorporated company or not. However, Customs and Excise takes a dim view of bodies registering for VAT purely for the purposes of saving themselves money. If they see that your input tax and output tax are vastly different (which is what yours would almost certainly be), they will start asking questions and probably want their money back. Bear in mind that they can get very nasty!

Another point to consider is that if you VAT register, although you will be able to reclaim the VAT on fuel and maintenance, you will also need to charge yourselves VAT on your hourly flying.

In my view, setting yourselves up as a company only really makes sense if you are going to be offering your aircraft for hire. You do not need the protection afforded by limited status unless you are exposing yourself to possible liabilities. If you are a closed group, limited status will not give you much protection against being sued or prosecuted.

I am a director of an aircraft operating company which hires its aircraft out. Our annual turnover is below the compulsory VAT registration threshold, and we took the decision not to VAT register as it would have made our hourly hire rate less attractive to customers.

[Taildragger55]

Thanks Sassenach,

Thought as much.
The Irish VAT also dislikes giving money back.

:(

[dublinpilot]

Having a limited company or a partnership will make no difference to the VAT position. However a limited company can help provide a good legal framework for the ownership, and management of the group.

dp

[FNG]

Assuming a purely private flying operation, the principal advantages of owning an aircraft through a limited company are as follows:-

(1) Corporate ownership of the aircraft protects group members in respect of the civil liability which arises under section 76(2) of the Civil Aviation Act 1982 if the aircraft or something which falls from it causes damage to something or someone on the surface (eg by crashing into someone's roof). The point here is that this liability arises without proof of negligence. By contrast, liability for damaging something or someone in the air (eg by crashing into another aircraft, or injuring one's passenger) depends on proof of negligence.

Note that corporate ownership of an aircraft does not alter an individual's personal liability for his or her own negligent flying. Note also that, whether or not the aircraft is owned by a company, prudence dictates that it be insured in respect of liability to third parties.

(2) The ease of keeping a record of and of transferring shares in the aircraft.

As dublinpilot has pointed out, a company is one method of giving structure to what might otherwise be a somewhat vague arrangement. There are other methods, but a company is a fairly simple one.

[DFC]

The CAA limits the number of owners in a group to 20.

Is forming a company a way round that requirement - the aircraft is owned by the company - 1 legal entity while the company in turn is owned by 30 or 40 people?

There may also be some problems with the C of A category when a company is formed - a group can operate on a private C of A but I think that when a company hires out an aircraft even to it's own shareholders then a Public Transport C of A is required. Can anyone confirm that?

Regards,

DFC

[Taildragger55]

Thanks everybody.

I'll suggest a company to the group but be very careful about the VAT.

Wonder if benefit in kind rules would apply?

[FNG]

DFC, an aircraft owned by a company need not have a public category C of A simply in order to allow the shareholders to pay for the right to fly it: see Art 130(10) of the ANO.

By the way, it is not strictly correct to say that no more than 20 people can own an aircraft, or shares in a company which owns an aircraft, but, if there are more than 20 shareholders (ie: if each owns less than 5% of the aircraft or the company), then the "private flight" rules in article 130 will not apply if payment is made for the right to fly the machine.

[bookworm]

Just to reinforce what FNG wrote, there is no significant difference between company and joint ownership for the purposes of the PT/aerial-work/private rules set out in Art 130 of the ANO.

An aircraft can be operated on the private category in the conventional way that groups operate (pilot pays hourly and monthly costs) by either up to 20 joint owner-pilots or by a company of which the pilots each own at least 5%.

With more than 20 owners, whether a company or not, the aircraft has to be on a PT C of A.

[dublinpilot]

Taildragger,

If you give some more detailed info, I can better tell you about he VAT situatioin. However, I think you will find it hard to registrar for VAT if it is a normal group, just sharing the running costs of he aircraft.

Benefit in kind won't be an issue in Ireland, so long as the full cost of flying is being paid by each member.

dp