VAT on used aircraft and Ltd. companies

[Ojuka]

Can anyone give me some advice on how to go about recovering VAT on the purchase price of a light aircraft? Can it be run as an asset to one's business for joint business but mainly pleasure use?

Also, I hear many buyers set up Limited Companies to reduce their third party accident liabilty. Can you do this without actually running it at a profit?

All tips gratefully received.

[Justiciar]

You really need an accountant on this. I think that you will find that buying an aircraft through a vat registered business may entitle you to get the vat back, thought the use of the aircraft by the proprietor or director of the company will be taxed as a benefit.

If you are fully insured running an aircraft through a company has little advantage. By all means have a company for business reasons but just to run an aircraft seems overkill. Companies have to have annual accounts drawn up, annual returns files and are constrained in what they do.

[Ojuka]

Good stuff.

Thanks for that; at the moment I have a sole trader status (established 10 years) and my accountant has been encouraging me to upgrade to limited company lately. I see from your profile you have business law experience; how does the VAT man view the VAT reclamation? Do they have scales on how they judge justifiable usage? My idea was to buy it as an non-depreciating asset to the business, but PAYING the business for my personal useage an hourly rate. Is this being naive where the VAT man won't buy such an excuse, or is it normal practice?

Your further comments would be appreciated.

N

[LowNSlow]

Ojuka I never had any problems with the VAT people but had all sorts of grief from the Revenue men. There have been previous threads on this subject, have a search about and you'll get the pros and cons of this potential minefield!

[FNG]

Re third party liability: a company could come in handy if for some reason the insurance does not cover a liability owed by the aircraft owner. The company need not trade and the hassle and running costs are fairly minimal.

See


http://www.companyregistrations.co....aries-guide.asp

http://www.companieshouse.gov.uk/

[Justiciar]

There are several different aspects here. As far as vat is concerned the business could only really claim full vat on the purchase if the aircraft is used exclusively for business use. If you can quantify the business use at x%, then only vat on that percentage would really be reclaimable. One avenue might be to ask the vat people. You might be able to agree a figure on which you can recalim the vat based upon expected use. Occasional private use of a busienss asset would probably not be a problem, but if it is the other way around you probably would not be able to recover anything like full vat.

As far as personal use is concerned for income tax purposes, the use would be a taxable benefit for income tax purposes, unless you paid all the costs of the flight. The fact that you repay the costs to the business does not directly affect the vat position though it would be a reflection of the business v private use.

You might also struggle to persuade the revenue that all the expenses of maintenance, insurance, hangerage etc. should be allowable against tax (corporation or income as the case may be) if most of the use of the aircraft is non business, even if you are repaying the costs of each flight.

If you are a sole trader then there is no legal problem with the refund of flying costs since you are really paying yourself. However if the aircraft is owned by a limited company then the aircraft would need a public CofA because you are in effect hiring the aircraft from the company. This also means no Permit aircraft in this arrangement.

Whether the limited company route is best for you is probably a tax issue. Remember that the revenue have tightened up considerably on the arrangement whereby sole directors paid themselves a tiny salary but huge dividends so as to avoid basic rate tax and National Insurance. From April companies with small < £10,000 profit who then pay dividends have to account for 19% tax!

The company route involves you in more formal procedures. Things which as a sole trader you would just 'do' might require a resolution of the company; as a sole director you need someone else to be secretary, there have to be annual returns and accounts filed and you cannot borrow significant money from the company. You also have to notify changes of director, allotment of shares, changes in the Articles etc!

You also have to consider what happens if for any reason your company becomes insolvent or is wound-up. The aircraft would be an asset of the company and you would loose it. One way forward might be for any money you lend the company to be securred by a charge on the aircraft. I have just done this for someone else.

Check your PMs:ok:
Edited:Sorry just noticed you don't acept them. PM me for further discussion