Tax Relief on Bonds

[Megaton]

Has anyone tried successfully or otherwise to reclaim the tax back on training bonds. I left my previous company with 2/3 of the bond outstanding and I wondered if there were any tax experts out there who could point me in the right direction.

[TEN DOLLAR]

I would also appreciate any info on this subject, having just handed over £10,500 to my previous company and £3,600 to the one before that!! That's a lot of money!

[CanAV8R]

If you are a BALPA member give them a ring. They have someone on the case from an accounting point of view. The tax people are considering giving back some of what was paid. Watch this space.

[Megaton]

I did call BALPA and the reply I received was less than helpful - in fact, the response showed no understanding whatsoever of the bonding system! The BALPA adviser only offered general advice on training loans and the IRs dim view on them rather than the more specific case of training fees agreements once employed by an airline.

[Hirsutesme]

It is simple. There is no tax relief on training costs for pilots. BALPA is endeavouring to persuade IR and HMG to change their minds. Consideration is being given to this.

[Dan Winterland]

Not strictly true. There is tax relief on training, it's just that the company who trained you has already claimed it. The bond you pay them is re-imbusing your training costs - tax relief has already been given.

[Hirsutesme]

Precisely, re read my post, "there is no tax relief for PILOTS"

[John1984]

Hi

Was just wondering if the Revenue had looked at the issue of tax relief on training bonds that pilots pay their employers if they leave early?

Any accountants out there?

Ta.

J

[parabellum]

"Some companies don't actually pay for training (it is provided by the manufacturer"

Not strictly true. The manufacturers don't provide anything for free. They will provide training for, say, five crews per aircraft or they will give you better or more galleys, a bigger and better engineering pack, or any variety of add-ons but they all come from within the price of the aircraft.

[Fly Better!]

I tried claiming it back. I rang my tax office and got told that I couldn't claim it back the same way as doctors can't claim their training costs back.

The tosser I spoke to then went off on a personal rant about why should other people pay for my training so I can earn more money etc etc. I told him he was a bitter and twisted little man in a dead end job, and if he wanted more money he should train for an accountants job or something.

He did say if I wanted to I could appeal in writing. I joined Balpa since then and was hoping they might be able to help but it doesn't look like it :(

[Bealzebub]

Why would you be able to claim tax relief for breaching the time element of your contract?

The bond is a security to protect the employer for losses they might incur as a result of your electing to terminate your employment within a specified period. You are free to take this course of action, but would then be liable for the terms of the contract you entered into.

Why should you then be entitled to claim relief on those monies. Anybody breaking a mortgage contract or another financial agreement would not be entitled to relief on any penalities.

This isn't money that you have expended as a consequence of your employment, it is money that you have expended as result of not fulfilling your contractual time obligations. That contract or bond was presumably entered into in order to put you in a position to undertake that employment, and in the UK that is not allowable for the purpose of tax relief.

[ToneTheWone]

When I joined my present company the arrangement was I would pay for half the type rating and the company would pay the other half as long as I stayed for two years.

I asked them to reduce my salary for the first two years and at the end I would get back my contribution. After looking into it, it was fond that this was quite legitimate with the arrangement classed as a salary sacrifice.

In effect what what was happening was that I would be bonded for the whole amount, with half being put up by me in cash and the other half covered in a legally binding contract. If I stayed two years the type rating would be fully paid for by the company and I would receive a lower salary for two years.

The up side is that I would save tax and N.I. contributions on half the cost of the type rating. The company would also have to pay less N.I. contibutions on my lower salary.

The down side is that if the company went bust I could lose the cash I put up front. A risk I was willing to take.

I hope this makes sense:O

[touch&go]

The answers NO, back in 1999 Gordon Brown took it away as part of his ten year cash grab.

[Time Traveller]

Oh - don't be so self-righteous Bealzebub - To leave a company earlier than the bond expiry date and pay off the bond is to COMPLY with the terms of the contract; NOT - "money that you have expended as result of not fulfilling your contractual time obligations".

That is before getting onto the highly questionable application of bond terms in many companies, very often way in excess of actual costs, and applied in a way with the clear intent of making it almost impossible for employees the leave. Market forces (ie pay a wage which will encourage people to stay) is the morally correct way to go , and indeed that is the way it works in mainland Europe.

[Bealzebub]

No, I wasn't being "self righteous" time traveller, that is why I specified "time element of the contract". I appreciate that the poster was not suggesting a general breach of contract, since they had settled the financial penalty, and wondered if they might be able to claim tax relief on this penalty.

As with any contract, it is usually too late to start complaining about the terms after you have entered into them. Whether you like my answer or not, it is still not allowable.

[Time Traveller]

Absolutely no law against leaving a company before the bond is up - Moreover, it is entirely honourable to pay the outstanding bond liability (even if in many cases I believe the employee is being taken for a ride)

Re tax - If they want their money, I would expect co-operation from the employer - they can take it off your gross pay for the remaining months.

[toratoratora]

some years back, i left a company owing a year's bond,£4000.I did a deal with the chief pilot whereby i worked my last month for no salary (about £4000 gross). it worked well for both of us-was it legal? couldn't tell you!

[spider_man]

Shame you couldn't have your bond deducted from your gross pay cheques during the course of your notice period, rather than pay cash on tax paid earnings. I'm suprised they didn't give the option since it ensures they get their money and probably reduces an element of tax liability for them.

Assuming any outstanding bond isn't a huge amount!

[Hudson Bay]

There is a significant difference between a bond and paying for your training.

If it is a bond, you do not pay anything for your training so there is no tax relief. flybe operate this system.

If you pay for an aircraft rating before you join a company, forget any chance of tax relief. You trained off your own back and that was your decision. This applies to Ryanair pilots.

If however you train whilst employed by the company (bmi) the most cost effective way of reducing your tax liability (and your companies) is by salary sacrifice. Many companies employ this policy for pension contributions as it benefits everybody except the tax man.

There are 2 rules that you must satisfy to reduce your tax liability if you have paid personally for your rating. (As long as your employed by a company)

1) The employee is obliged to incur and pay as holder of the employment.

2) The amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.

If you can satisfy both conditions there is no problem in reducing your liability.

You will find that any sticking point will be in the wording of your employment contract.

Balpa are actively in talks with the IR to standardise the system. At the moment all cases are dealt with on an individual basis.

[Todders]

Ok heres one for you to get your teeth into though i can guess the answer.

I paid for my type rating up front and worked for a company for a little under a year on the bases that they paid the type back on top of my wages at £1000 a month. The company went bust. Is there anyway for getting any of this money back either from the government or the administrators? Should it be by way of tax or any other. Tax was around £4000 so you can see it's worth at least asking you guys in the know.

Todders

[parabellum]

As long as you have a signed agreement with your company then you are a 'creditor' but probably an unsecured creditor as it is usually the banks, finance companies etc that are secured creditors. Make sure you register you claim with the administrators/liquidators, they cannot ignore you but you may only finish up getting a few pence in the pound of the monies owed to you and it could take several years and come in tiny packets. Don't just forget it but don't count on it for your immediate needs either.

[Bealzebub]

In addition to what parabellum has already suggested , and speaking generally. If you paid for a type rating to put you in a position to do the job then the revenue would not consider the cost as being allowable for relief. The contractual difficulty you may also face is that you paid for a type rating and they supplied it in fullfilment of that part of the contract. Having obtained that type rating was there any contractual guarantee that they would then reimburse you other than for the period that either side elected to maintain a contract of employment? It is quite unlikely, since they would have almost certainly left themselves scope to terminate the contract within statutory terms and without additional penalty?

[Deep and fast]

What about this scenario.

My company you pay £2000 up front then a salary deduction of £167 a month for 5 years. Should this be a regulated arrangement by the FSA or the OFT which regulate financial transations!
Even though it is interest free it is effectively an interest free loan, which is subject to the regulatory bodies and you have to be regestered to provide these services.

Any thoughts out there?

D and F :8

[Fly Better!]

If you pay for an aircraft rating before you join a company, forget any chance of tax relief.

Not strictly true, I used ot be self employed and claimed tax relief on my type ratings, and the upgrade exams from CPL to ATPL.

The tax office I called also confirmed that a self employed pilot can claim the tax back on a rating.

So if you are thinking of doing a rating out of your own pocket, do it as a self employed person.

[ToneTheWone]

If you go on to the Inland Revenue's web site HM Revenue & Customs: Home Page (http://www.hmrc.gov.uk//) and do a search on "Airline Pilots" it's quite interesting what comes up.

The link below is particularly relevant to the original post.

Airline pilots: payment of training costs: Milsom & Hinsley v HMRC (SpC569) (http://www.hmrc.gov.uk/manuals/eimanual/eim50065.htm)

[apron]

I have, after employment was started, embarked on a type training like the bmi scenario. I have not benefited from salary sacrifice and have paid now 15k for rating. Would this be a good scenario for a tax claim??