Is LOL insurance premium taxable ?

[roundwego]

My company is considering providing aircrew loss of license insurance as part of the package. Does this become a taxable benefit in kind? I hear that the the IR treat different companies differently. Any info would be appreciated from aircrew who get LOL provided by their employer.

Thanks.

[roundwego]

Thanks for reply Boxcar. Subsequent enquiries has established that many airlines have schemes which are constructed so that it is not taxable. I believe the companies insure themselves as the beneficiary then pay the pilot a payment as a non taxable ex gratia payment - maybe as part of the severence deal?

Would any other airline aircrew be willing to indicate if this is correct or not.

[squeaker]

It is a taxable benefit for us (Monarch).

[Airbus Girl]

Its not a taxable benefit at Air 2000 but then I have only just discovered that Air 2000 do what was mentioned earlier - self-insure. That is, if you lose your licence its Air 2000 who pay up. Or not.

[Officedesk]

It must be mentioned that in the cases mentioned above where the company simply pays out to the pilot, tax will still then have to be paid at 40% on the benefit received as it is then seen as income.

You can either accept it as a benefit in kind and pay tax accordingly, or opt to pay the tax on benefit.

I know BALPA is working on the Inland Revenue to try to get the decision to see Loss of Licence insurance as a benefit in kind reversed.

[Lucifer]

It shouldn't be a taxable benefit in my mind, as it most certainly is taken out "wholly, exclusively and necessarily" for the purpose of the job.

We should all get a judicial review on the matter as the IR won't concede unless forced (the money-grabbing, unhelpful, idiots).

Little story - do you know why parking spaces at work are NOT taxed as a Benefit in Kind?
Because the Revenue bosses raised such a fuss when proposed, since they have such a privilege themselves.

Answer: get friendly with a taxman, and get him hooked on aviation.

[Officedesk]

Quite agree with you Lucifer. I don't think there will be many pilots in the country who will be happy to pay tax on this essential insurance.

But what do we do about it? I for one reccomend that, as a starting point, all pilots write en masse to their companies tax office stating clearly their reasons as to why they object.

I have done this and it will really help if all else concerned do the same as well.

[Bealzebub]

Lucifer,

Whilst it would be nice to be exempt from tax on this benefit in kind it is rather stretching the imagination to suggest it is wholly exclusively and necessary to undertake the job.

It is a discretionary insurance policy. It may be wise to have it but it is not necessary. Other insurance benefits such as PHI (permanant health insurance) may be considered as a complementary or alternative benefit so it it is not exclusive.

I suspect that drawing attention to other benefits such as free car parking and indeed staff travel perks will do little to enhance the arguement and no doubt the revenue are keenly looking at ways to bring these within their future remit.

[Officedesk]

It may well be a discretionary insurance and I can see where the inland revenue comes from to regard it as such. However, I still feel it is unreasonable to expect a company provided scheme to be taxed in this way. This will cost pilots in my airline from between £700 per year for younger pilots to as much as £3500 per year for over 55s!

Consider these arguments as a few amongst many:

1. An airline pilot can lose his medical certificate very easily. He or she can often be grounded without an income – whilst still relatively fit and find it very difficult to find suitable employment. Whilst the general public regard an airline pilot as an intelligent individual, it is, in fact, a very difficult challenge for us to gain useful employment if we cannot continue with our career. He or she rarely has other qualifications or experience in other fields and they are extremely unlikely to gain employment at a similar salary level. Prospective employers are unlikely to offer them less paid positions as they may deem them overqualified or too intimidating to their junior management. At the time of career loss he or she may be well into our forties or fifties and therefore unappealing to a prospective employer to begin an alternative career. Therefore, an airline pilot would be very lucky to gain employment with greater than 30% of his or her previous salary. Therefore, an airline pilot can encounter considerable hardship in the event of loss of flying licence. He or she would unfairly encounter this hardship after paying a considerable amount in tax throughout his or her career he or she has just lost against his or her wishes.

2. Most airline pilots have spent many years developing their careers at great expense to themselves. Due to the nature of flight training and the time involved there is rarely an outlet for tax relief or subsidy to assist them. VAT is charged on flight training and an individual has no means of claiming this back at any point. The average cost to an individual to get the basic qualifications required to become an airline pilot – taking into consideration training costs and VAT, loss of earnings during training and interest on loans is around £100,000. We have never had this rebated at any point and from our first day of work as a pilot have paid tax at the full rates.

3. There is also a safety link. You must consider that If a pilot is under threat of hardship if he or she loses his or her licence he or she is far less likely to visit his or her doctor with a concern about his or her health. Believe me that this does indeed happen when pilots are not covered!

Therefore, whilst being discretionary, I believe that, good quality, loss of flying licence insurance is vital in the pursuit of the occupation of an airline pilot and is solely used for this career. Therefore, to view this as a benefit in kind is very questionable and prohibitively expensive - and therefore unreasonable.

[Bealzebub]

Playing devils advocate :

You can insure yourself against whatever risks you feel appropriate and it is probably very wise to do so. If your employer pays the premiums for you for any of these risks then the revenue are likely to treat these payments as a benefit in kind. Tax will either be payable on the premiums for providing the insurance policy or alternatively on the receipt of the benefits themselves.

Officedesk consider these responses to your arguements which are likely to be the revenues response.

1) Many individuals can lose their income for a variety of reasons including the ones you suggest. They may be able to take out insurance to protect themselves from the full effects of such loss but that would be discretionary and not subject to tax relief. The amount of tax you pay is porportionate to your earnings and irrelevant to your speculative state of health in later life. This applies to the rest of the population and ought therefore to apply to pilots who are no different in this regard whatever the perceived level of risk may be.

2) Tax is payable on earnings and any benefits in kind are assessed as additional earnings for which a tax charge is also payable. It is very interesting how much your career has cost but totally irrelevant to the revenue for the purpose of this consideration. Many other professions are of equal, greater or lesser difficulty but are not subject to relief for insurance policies of this kind. There is no link between the cost of your training, the VAT you have paid and any relief for discretionary insurance policies.

3) There is always a threat of hardship if any working person loses their income and insurance policies to protect against that risk may be available to the individual, but they are not exempt from tax.

You are right it may be very advisable to take out this type of insurance for all the reasons you suggest. It is also very wise to take out home insurance and car insurance and life insurance. However with the exception of third party liability car insurance ( which is usually compulsory for car drivers and not tax exempt either) non of these are anything other than discretionary policies. If you are in the fortunate position of having your employer pay your premiums for any of these then you must pay the tax at the approriate rate for the benefit in kind. Given your compelling arguements for how vital this insurance is you would no doubt agree that the tax is indeed a very small price to pay for the benefit that has been provided and paid for by your employer. If the employer did not provide this benefit then you would no doubt seek to provide this benefit at your own cost which would presumably be two to three times as muchdepending on your marginal tax rate.

[Officedesk]

Few industries or professions will find it quite so easy to lose ones medical nor so hard to find alternative employment as an airline pilot. (I accept there are a few - like deep sea divers - I think they should be equally exempt from taxation on similar insurances)

However, I fully accept that this is the likely outcome of any approach made to the Inland Revenue. I also accept that this could be a likely response from any tax inspector analysing the law.

However, the point that I am making is that - as I have given in the arguments above - it is an unreasonable interpretation.

Where is common sense disappearing to these days. This insurance used not to be insured in this fashion and it has been common practice for larger airlines to provide this type of insurance in addition to their terms and conditions of employment. This tax gives no consideration to the specialised nature of our occupation.

It is yet another example of Stealth taxing. And this is a very big one that sees pilots choosing between keeping their income the same or reducing their conditions and protection. If one does not accept any cover (incidentally, saving the airline a lot in premiums!) one will end up with no protection and a significant reduction in terms and conditions of employment. If one accepts cover one will end up with between a 3- 15% (depending on age) reduction in take-home pay.

Pilots have a right to be annoyed and to question this unreasonable approach by the Inland Revenue.

The airline industry is coveniently exempted from various laws and EU directives - like the working time directive - due to the specialised nature of the industry, so why is consideration not given to this?

Come on BALPA get stuck in for us!