Aircraft ownership methods

[undertheweather]

I'm hoping to buy a plane that is currently owned by a limited company based in the Channel Islands. The aircraft is the only asset of the company. The owner has offered to sell me either the company (with the aircraft, obviously) or the aircraft by itself. There would be no premium payable by me to buy the company.

I plan to operate the aircraft on a private C of A, perhaps upgrading it to a Public Transport C of A later in order to recoup some of my costs by having a club use it.

My questions are:

What are the advantages/disadvantages, if any, of having an aircraft contained within a company given the above scenario of use?

Are there any costs involved in owning the company?

Would it be of use when/if I upgrade to Public Transport C of A?

Finally, I would hope to register the aircraft ownership to my home address - does it make any difference (tax?) if a company is registered to my home address?

[VORTIME]

I'm not qualified to give such advise, however, this is IMHO...

1) The aircraft must be owned by a company. I doesn't provide 100% protection to the directors but helps a lot when the sh*t hits the fan.

2) Every limited company must produce accounts, therefore, expect to employ an accountant. You may find one who is willing to barter flying for accounts (since most enjoy expensive hobbies!). Over a certain threshold expect audits which will cost in the region of 2-3k.

3) The company should be able to reclaim VAT if it charges VAT to renters (which over a threshold it must do so).

4) Running from a home address shouldn't matter too much. You're supposed to apply to the local government to run a business from a residential premises (in this country)...but it rarely happens to say the least!

5) Probably better you setup your own company incase there are any pending lawsuits (that haven't been filed). There are quite a few problems inheriting a company...all liabilities as well. Problems such as credit rating and reputation could cause problems with suppliers (but unlikely).

6) When you open a company, you should be able to inject money into it under "director's loan" or such tax-free. Again, I'm not UK based so the laws may be different.

7) Buying a shelf company for £2-300 is probably your best bet, then just find a good accountant and you should be on your way. Also, beware that if you are the only director and seen to be "too heavily" involved in the company, a courtcase may be taken against yourself and the company jointly (I'm not a lawyer, don't quote me - but have done it myself :).

p.s. company should be able to cover the costs of your instructor (err. very unoffical - definitly don't quote!!) opposed to you paying out of your pocket.

[distaff_beancounter]

undertheweather

You have raised lots of interesting questions, that are sort of interelated, especially with the Channel Islands aspect.

Firstly, I would strongly suggest that you get advise from your own accountant, BEFORE, you buy a company. Getting expenditure relating to aircraft & flying, allowable for VAT & tax, is notoriously difficult, & should be planned before you buy the aircraft.

(Note to Big Red "L" .... I am not touting for business .... I am far too busy!)

And undertheweather, do not hire an accountant who is prepared to barter flying for accounts. Firstly this is known in my trade as "conspiracy to defraud the public revenue" & secondly, it is difficult to sue that accountant for bad advise, if you suggested this arrangment :D

The main reason for using a company to own a light aircraft, is to cover the uninsured part of third party claims. If you are sued for billions, then you just put the company into liquidation. Nowadays there is far less tax advantage, in a limited company, unless you are going to use the aircraft for a real business use.

As to whether you should buy a Channel Islands company, this is definitely one for your accountant, as he would have to take into account all other aspects of your finances, for proper tax planning.

One point to be very careful of, is the current VAT status of the aircraft. The CAA's UK register of G reg aircraft does cover the Channel Islands, so I assume that you are buying a G Reg A/c. However, the Channel Islands are NOT part of the UK for tax or VAT. Furthermore the CIs are outside the EU, for VAT purposes.

This can mean that VAT may or may not have been paid when the aircraft was first inported into the UK. If it went straight to the CIs & stayed there, & was not imported into mainland UK, then VAT may not have been paid. If so, if you are intending to keep it in mainland UK, then you will have to complete its importation and pay over the VAT. If the aircraft, has been registered in the CIs but has been keep in mainland UK, for more than 6 months, then VAT should have been paid. Prove of its VAT status, is either a UK Customs & Excise Form C88, or otherwise you need a letter from UK C & E confirming that the aircraft "is in free circulation in the EU" (In Customs-speak this means that VAT was paid on import). There are various other complications that can occur on VAT, such as was the existing CI company operating the aircraft in mainland UK, so might be VAT registered?

Please bear in mind, that unless your company does genuinely intend to trade, it may have difficulties in recovering any VAT paid on the aircraft, or on subsequent aircraft maintenance etc (this is another point for your accountant)

This leads on to the Public C of A question. From your posting, I asume that it is on Private C of A at present. If so, you need to talk to an aircraft engineer, as the costs of upgrades from Private to Public C of A, seem to vary from very little, to astronomic! If you are getting an engineer to survey the aircraft before you buy it (which is usually a good idea) he may be able to give you a rough idea of the costs.

As regards registering the aircraft at your home address, this will depend on whether you are going to buy the CI company, form a UK company, or own the aircraft personally. Clearly if you register the aircraft to an address in mainland UK, you would have to ensure that it has been legally imported for VAT purpose, as mentioned above. Also the aircraft owner in the CAA register should be the limited company, if you are using one, & not your personal name. Otherwise this might invalidate the original reason for the limited company .... to cap any third party claim, & could conteract any VAT or tax advantage.

It is very difficult to give you complete & concise answers on this subject, without the full facts, & I have rabbited on enough, already :D

If you have any further queries, please post them here & I will see if I can answer them.

[formationfoto]

I suppose the starting question has to be 'why?'. The only advantage I can see for a single owner is addressing the insurance issue although whilst it is possible to escape from the financial exposure by closing a company down it is not always possible to escape from responsibilities as a director so you could be pursued for not insuring to an adequate level for instance. If you had a group of people owning the aircraft company ownership has some advantages in that the operation of the group is then regulated in part by the companies act. Any member doing inappropiate financial things is then breaking the law.
There are downsides beyond the cost although the main one appears to be changing and the final position is unclear. This downside is that as a director using the company owned aircraft at less than 'commercial rate' you are receiving a benefit in kind - rather like having a company car and you could be forced to pay tax on this - our accounting experts might want to update us on the current position with this - currently I am paying £1,500 a year into the company which owns my four person shared aircraft to cover this liablility. What this means is that if I fly few hours I am subsidising someone els who flies lots of hours because I have a fixed cost of at least £1,500.

In general I would advise against buying an existing company. It may have all sorts of liabilities you are not aware of. To get round this you would need a water tight sale and purchase agreement with warranties and this will cost in lawyer time. In addition the warranties may be of little use if you can't track the vendor down after the event or he / she has spent up.

I am part of a company owner aircraft simply because it was company owned before I joined the group and had no choice. A final point - If the aircraft is sold at a profit the company pays tax on this. If the money is then returned to the shareholder - you - you will pay tax on an increase in the share value - double tax.

[distaff_beancounter]

formationfoto

Yes, you are quite correct that a director's use of a company owned aircraft, is a taxable benefit, unless that director pays the company a sensible rate for the aircraft use. There are no scale rates, as there are for company cars, but the principle is the same. That was one of the reasons, why I said that nowadays, there is little tax advantage in owning an aircraft, via a company.

On the insurance side, I am not an expert on this, but there does seem to be moves in the law, (especially in the USA) in the direction of pursuing directors for uninsured claims against companies. Obviously, if this does become a trend, then forming a company just for one light aircraft, may be even less attractive.

[GAF4139]

To add to VORTIME's post:

You don't need an audit unless your company's turnover is over £1,000,000, which I think is rather unlikely.

If you have to pay import VAT on the aircraft the company should be able to reclaim this. The company has to be registered for VAT. You can do this voluntarily even before you reach the registration threshold. This also means you have to charge VAT every time you hire out the aircraft. When you use the aircraft yourself you should charge and pay the same hire rates as a third person. We don't want any benefits to directors which are taxable.

Rather than buying a company where you don't know the history you should set up your own company. This will only cost you about £75 + VAT and takes about two weeks to sort out the paperwork. And it is not a problem to have the company registered at your home address. (We do this all the time for our clients).

I assume you use your private money to buy the aircraft. First you have to pay this money into the company's account as a director's loan and then the company can buy the aircraft. After a while you will find a better name for director's loan is "black hole":D :D because of all the money which is going to disappear here. (One of our clients who has done the same could tell you stories...)

Get yourself an accountant who will advise you about filing accounts, corporation tax, VAT and anything else you need to know regarding setting up and running a company.

You might even want to ask a solicitor regarding legal implications of buying an aircraft from the Channel Islands.

Whatever you do, enjoy your flying.


GAF4139