Mistwood
7th Oct 2011, 13:53
It had been thought that, following the change of VAT law in the UK in relation to the supply of aircraft, that AOC holders would be regarded as 'airlines'. However, it now seems that HMRC in the UK is interpreting the rules in a way that was not expected.
For the supply of an aircraft to be zero-rated it has to be a 'qualifying' aircraft. This means that it must be an aircraft used by an 'airline' operating for reward chiefly on international routes. An airline is defined in the law as any undertaking providing services for the carriage by air of passengers or cargo (or both). see the interesting and informative article (http://www.lexisnexis.com/uk/legal/docview/getDocForCuiReq?lni=52BN-CHG1-DYJS-2072&csi=281210&oc=00240&perma=true&elb=t)
If an aircraft is a qualifying aircraft, the supply of it (sale, lease or hire) is zero-rated and supplies of such things as handling and maintenance etc are also zero-rated. If the aircraft is not a qualifying aircraft, then VAT at 20% is due in relation to the supply of the aircraft itself and the handling / maintenance costs etc.
In cases where aircraft are 'managed' by an AOC holder, it was initially thought that provided the AOC holder met the definition of an airline operating for reward chiefly on international routes, the supply of ther aircraft by the owner to the AOC holder would qualify for zero-rating. It seems however that HMRC has amended its Notice 744C (see paragraph 12) (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000169&propertyType=document#P438_43582) which now states that where a Manager (AOC holder) uses an aircraft partly to fly third party charterers but also partly to fly the owner, the aircraft cannot qualify as a zero-rated 'qualifying' aircraft. What is more, I understand that HMRC are challenging AOC holders which manage aircraft they don't own. They seem to be suggesting that they are not an 'airline' as defined, but are simply aircraft 'managers'. As such, it seems that very few Biz Jets in the UK could ever be regarded as 'qualifying' aircraft
It seems to me that whether or not the AOC holder is an airline (as defined) is a question of fact which will be evidenced by the contractual documentation. If the AOC holder acts as principal when it provides 'Public Transport' under its AOC, it would seem to me to be straining the truth to say that they were not an undertaking providing services for the carriage of passengers by air. Come on HMRC, you need to get this right?
Anybody else having any difficulties with the new VAT rules?
For the supply of an aircraft to be zero-rated it has to be a 'qualifying' aircraft. This means that it must be an aircraft used by an 'airline' operating for reward chiefly on international routes. An airline is defined in the law as any undertaking providing services for the carriage by air of passengers or cargo (or both). see the interesting and informative article (http://www.lexisnexis.com/uk/legal/docview/getDocForCuiReq?lni=52BN-CHG1-DYJS-2072&csi=281210&oc=00240&perma=true&elb=t)
If an aircraft is a qualifying aircraft, the supply of it (sale, lease or hire) is zero-rated and supplies of such things as handling and maintenance etc are also zero-rated. If the aircraft is not a qualifying aircraft, then VAT at 20% is due in relation to the supply of the aircraft itself and the handling / maintenance costs etc.
In cases where aircraft are 'managed' by an AOC holder, it was initially thought that provided the AOC holder met the definition of an airline operating for reward chiefly on international routes, the supply of ther aircraft by the owner to the AOC holder would qualify for zero-rating. It seems however that HMRC has amended its Notice 744C (see paragraph 12) (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000169&propertyType=document#P438_43582) which now states that where a Manager (AOC holder) uses an aircraft partly to fly third party charterers but also partly to fly the owner, the aircraft cannot qualify as a zero-rated 'qualifying' aircraft. What is more, I understand that HMRC are challenging AOC holders which manage aircraft they don't own. They seem to be suggesting that they are not an 'airline' as defined, but are simply aircraft 'managers'. As such, it seems that very few Biz Jets in the UK could ever be regarded as 'qualifying' aircraft
It seems to me that whether or not the AOC holder is an airline (as defined) is a question of fact which will be evidenced by the contractual documentation. If the AOC holder acts as principal when it provides 'Public Transport' under its AOC, it would seem to me to be straining the truth to say that they were not an undertaking providing services for the carriage of passengers by air. Come on HMRC, you need to get this right?
Anybody else having any difficulties with the new VAT rules?