Starting a new group

[Prunie]

Hi

I am looking at starting up a group with 2 other pilot friends. I have some AOPA guidelines and they are advising a Ltd Co.

We are planning a monthly fee to cover fixed costs with a wet hourly rate, also an engine fund.

My problem is if we pitch the monthly & hourly rates slightly higher than we need and we end up making a profit, then we will have to pay Corporation Tax (we pay too much to the Chancellor as it is); but if we pay too little then there will not be enough to cover the costs!!

How do other Groups cope with this?

Prunie

[The500man]

I'd suggest you go with a syndicate agreement and not a limited company, you surely don't want the hassle of doing accounts and tax for your hobby.

If you have a group account you can adjust the group rates periodically to suit the funds you think you need. Most groups charge fairly low basic rates and then have a whip around for unexpected costs.

[Maoraigh1]

Most groups charge fairly low basic rates and then have a whip around for unexpected costs.
That's how the group I've been in for over 23 years has worked most of the time. The guys who do least flying in my group are those who oppose raising the hourly rate - but they then put up their share of the emergency whip-round.
Only once (1993?) have we retrospectively raised the hour rate - ie you pay proportional to the hours flown in the last x months.
PS. Since we went on a permit, we've made decent profits towards an engine fund, with no whip-rounds needed. Currently £60 wet per tach hour and £50 per month for insurance and hangar, on an O-200 Jodel DR1050. Landings extra. Rate MUST be wet, on meter, to avoid problems.

[foxmoth]

Rate MUST be wet, on meter, to avoid problems.

Depends on the aircraft - The group I used to be in you could leave the front tank full which gave (IIRC) about 3:30 flying with no W&B problem, if you wanted more you could then put some in the rear. We charged dry and left it full - if you got back late, a note was left and the next person filled the front and it was charged to you - worked well for us, but no good if you cannot be sure of the fuel level.

[mmgreve]

Taxable profit and cash flow is not the same thing. Not knowing the accouting rules on aircrafts, I'm absolutely sure you can depreciate their value.

I would run the group at a slight possitive cash-flow but net taxable loss, which is carried forward, if it's a valuable aircraft. If cheap and cheerful, I would just run a loose syndicate.

[A and C]

I would suggest that any Proffit made be held as a capital reserve..........eventually something will happen to eat that reserve and more !

[Genghis the Engineer]

I've been in half a dozen groups over 20ish years, but none have yet felt the need to become limited companies.

However, written agreements I'd consider an absolute necessity, along with some reasonably robust vetting of new members. This last will be very hard to achieve when somebody is very keen to sell their share later on.

Financially there are several models I know of, and all can work, or not, depending upon context:-

(1) Minimal monthlies, adequate hourlies, occasional cash call.

(2) Adequate monthly + fuel only.

(3) High monthly, covering (say) 12 hours per year also, hourlies after those 12 hours, no money back for unflown hours.

(4) Slightly enhanced monthlies to build up a reserve, ditto hourlies to build up an engine fun.


I've been in all of these except for (3), and for a higher value aeroplane if I was setting up a syndicate again I'd look seriously at (3) as the way ahead. (2) works very well on a syndicate I'm currently in on a very inexpensive to run aeroplane. (4) is however the most common and clearly works fine.

Cash calls are possible with all of them of-course as aeroplanes do have a nasty habit of attracting large unexpected bills.

Always have hull insurance.

G

[Dan Winterland]

One largish group I was in was a limited company. One of the members was declared bankrupt and the baliffs arrived at the airfield to impound 'his' aircraft. They had to go away empty handed when we could prove that he actually owned one share in a company with a nominal value of one pound.

It's great protection, with the bonus of making the other members of the group liable only for their share of the company should things go very wrong. I would strongly advise it.

[Prunie]

Thanks for all the replies.

We want to go the Company route for the added protection it gives in case of accident or (as mentioned) bankruptcy of a member.

The major problem I am trying to solve are treasury ones - anyone out there do the accounts of a flying group company??

[dublinpilot]

As I understand it you seem to simply have a way of sharing the costs among you. You aren't 'renting' to third parties, and aren't seeking to make a profit. All you are trying to do is find a way to share the real costs among the three of you.

I'm no expert in UK Corp Tax, but would be really surprised if the HMRC would seek to tax any excess income on this. Certainly the Irish authorities would not.

There doesn't appear to be any "trade". This is solely a cost allocation vehicle. Presumably if you continue to make a surplus, and the anticipated contingent expenses never arise, you will amend the rates to reflect that.

If there is no trade, I can't see how it would be liable to UK CT, but as I said I'm not an expert on UK CT.

There are some here who are more familiar with UK CT and will probably comment for you ;)

dp

[Pass your message]

1. You are not TRADING with a VIEW of MAKING A PROFIT.
2. If there is a surplus, this would either be in lieu of future costs to be borne(and hence no long term profit), or due back to group memebers as excess contributions.

Thus no UK tax consequences.

[Prunie]

Thanks very much - sounds better than we were expecting!