Creating a company to operate an aircraft

[NorthSouth]

Anyone have any tips on the ins and outs of creating a company to operate an aircraft which is owned by several people and is leased to a club for training and hire?
NS

[Tiger_mate]

A company gets its own Tax Allowance which is quite probably a good way of 'saving up' for a newer aircraft.

Owners would be Directors

Annual accounts would be required and the Bill for a Limited Company is upwards of £600

At face value it would appear to be a good idea, but like anything, worth the cost of professional advice from a reputable accountant rather then Pprune hearsay.

[sternone]

You would still have to invoice the owners/members when they fly the planes with their PPL...

[mm_flynn]

Owning an aircraft in a LTD company structure to limit liability is often discussed and is probably a good idea if you are leasing to 'random' third parties. As the owner you are strictly liable for damage to persons and objects on the ground even if you are not the pilot or the operator.

Using a company structure to save tax money is likely to cost more in pain/legal fees with HMR&C than it is worth. They have an amazingly poor sense of humour if a money loosing company is based around the director's hobby. Have a search for previous discussions on this topic

[TheOddOne]

At face value it would appear to be a good idea, but like anything, worth the cost of professional advice from a reputable accountant rather then Pprune hearsay.

I couldn't agree more. It's not expensive to do but you do have responsibilities and Companies House in particular are VERY hot on prompt, accurate returns for paperwork. We got our accounts sent back last year 'cos we had the year of the date wrong on one page, so they do go through them, even for small companies.

We formed a Limited Company to own our aircraft over 25 years ago and it's definitely the way to do it. Once you have an accountant set everything up, you can do the rest yourselves, provided you keep books in an approved manner (we use one of the popular accountancy softare packages and it produces profit & loss and a balance sheet good enough for the return).

Cheers,
TheOddOne

[IO540]

This has been discussed before.

Of course you need professional advice from an accountant who deals with high net worth individuals and knows the rules on private use of company assets - not your average street corner tax-return chappie who is not interested in the slightest hassle and will just throw you to the lions (HMRC).

There is no problem in setting up a company, and indeed this is advisable because it protects each shareholder from the actions of the others, so a large liability should just result in the winding up of the company without making the members personally liable in the way they would be in a normal partnership.

You do still need insurance (legally for sure) otherwise the Directors could become personally liable for not doing their proper duty....

The company doesn't have to make a profit, which is just as well since it almost certainly won't! Well not in the sense of ever sending corporation tax cheques to HMRC - the capital allowances will take care of that, without even having to bring in any real money :)

(Note that a limited liability partnership DOES have to be set up to make a profit).

The real problem with a limited company owned asset is the issue of Benefit in Kind. Traditional defences have been that any private use of the plane is charged to the beneficiary at the same rate as to unconnected outsiders, but HMRC have been known to set this aside on the grounds that the company was not set up to make a profit.

You need a good business plan to support your case there but unless you are renting out yet another old piece of wreckage there isn't likely to be an overall profit, which makes it easy for HMRC to allege that the business was not set up to make a profit :)

A lot depends on how aggressive the inspector is. I am pretty familiar with one case where HMRC were given 5 digits to settle a 2 year long enquiry, which might have been won (for the client) at the G. Commissioners but as is often the case this was never tested. HMRC like nothing more than a settlement which is not based on any justice, because the inspectors work on a points system; it's not commission but is pretty close. A tax barrister will cost you £10k so they hit you hard with a tedious enquiry hoping you will give them a cheque so they can hit the next outfit.

OTOH plenty of others seem to be getting away with it. A still valid defence to the BIK attack appears to be that ALL flyers are owners, but then you can't rent the plane out to outsiders.

I would not recommend renting out on several grounds:

- the plane will get wrecked
- very hard to make money by renting out anything half decent
- too easy for HMRC to allege it was a scheme to give the Directors cheaper flying, and hit them for BIK
- setting up a syndicate made up of good known trusted people is a much better way to reduce operating costs (this can still be around a ltd. co. for the liability protection but with everybody being a part owner there is no BIK risk)

As regards the other half of the job (claiming back the VAT) this is best dealt with by purchasing via Denmark. This once-threatened option now appears safe into 2008 due to the election there. If you want to claim back the VAT you ahve to do a business plan for HMRC which shows a profit is aimed for and that will again take you into the outside rental territory, because a syndicate can't make money.

Doing the company accounts is the trivial bit - pick up some simple accounting package.

Just some starting points to pass by a competent accountant (if you can find one; those familiar with this stuff are rare as rockinghorse s**t).