Claim the VAT on my FIC course?
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Claim the VAT on my FIC course?
I'm just about to start my FIC(r) course. I am also registered personaly and have a VAT number in my name. Can i claim the VAT on my training, I'd like to try anyway. Let me know your thoughts on this I'm sure others have tried.
Before somebody shouts at you for not using the search facility, have a look here VAT thread in Rotorheads
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I've read all the posts in that thread, and those it links to, but I'm still on clear on a few aspects.
First of all, the bulk of the stuff is from 2005, so are the facts still true with respect to current regs?
From what I've read I'm still sketchy on the issue of proving yourself to be self-employed if you are in fact employed virtually exclusively by one FTO. Did a court ruling/test case definitely back up the instructor in this situation, and is this still the situation today?
If I am classed as self-employed, is there a period of time before I can switch to being employed when I can live without dear of being hunted by HMRC for VAT claimed back during training? Circumstances do change and I might be offered an employed position after minimal time as an instructor.
First of all, the bulk of the stuff is from 2005, so are the facts still true with respect to current regs?
From what I've read I'm still sketchy on the issue of proving yourself to be self-employed if you are in fact employed virtually exclusively by one FTO. Did a court ruling/test case definitely back up the instructor in this situation, and is this still the situation today?
If I am classed as self-employed, is there a period of time before I can switch to being employed when I can live without dear of being hunted by HMRC for VAT claimed back during training? Circumstances do change and I might be offered an employed position after minimal time as an instructor.
Educated Hillbilly
The only way you can claim the vat back will be if you are working as an independent contractor (i.e: freelance self employed instructor) when you finish your course. However the money you are funding your course with is coming from someother source and is not generated by flying based revenue.
That is anything you buy for your "business" you can claim vat on, but if your current line of work is not flying then it is hard to justify an FI rating is for your business.
As a restricted flying instructor you would not comply with IR35 regulations (an unrestricted instructor can work around the regs and be complaint) therefore cannot work as a self employed instructor initially. So I would have thought no you can't claim back the vat.
That is anything you buy for your "business" you can claim vat on, but if your current line of work is not flying then it is hard to justify an FI rating is for your business.
As a restricted flying instructor you would not comply with IR35 regulations (an unrestricted instructor can work around the regs and be complaint) therefore cannot work as a self employed instructor initially. So I would have thought no you can't claim back the vat.
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Presumably if you register to claim back your VAT costs in training, you will have to charge VAT to your customers.
If so, you'll have to charge the club 17.5% more than the other instructors; or else charge the same, but give 17.5% to HMRC.
If so, you'll have to charge the club 17.5% more than the other instructors; or else charge the same, but give 17.5% to HMRC.
Educated Hillbilly
There is some truth to your point Very Civil Pilot, but the rate customers pay for PPL training has VAT added already. In which case for an instructor to be recognised as truly self employed the student would have to hire the plane from the club and then pay the self employed instructor separately. Hence allowing the instructor to charge VAT for his/her services separately from the amount paid to the club.
As I have mentioned in previous posts/other threads it is in my interpretation of IR35 compliance rulres that a restricted instructor cannot be self employed, therefore all instructors prior to having the restriction removed would have to be under employed status, hence it is not then possible to claim back VAT on initial FI courses.
However an unrestricted instructor working on a self employed basis though his/hers own limited company should be able to put the expense of renewals and upgrades (ie: multi engine instructor upgrades) against tax, providing all subsequent earnings are on a contract basis.
An unrestricted instructor has to work under the supervision of a FI, under IR35 an independent contractor should be able to work exactly as stated independently without supervision, therefore FI(R) cannot be self employed.
As I have mentioned in previous posts/other threads it is in my interpretation of IR35 compliance rulres that a restricted instructor cannot be self employed, therefore all instructors prior to having the restriction removed would have to be under employed status, hence it is not then possible to claim back VAT on initial FI courses.
However an unrestricted instructor working on a self employed basis though his/hers own limited company should be able to put the expense of renewals and upgrades (ie: multi engine instructor upgrades) against tax, providing all subsequent earnings are on a contract basis.
An unrestricted instructor has to work under the supervision of a FI, under IR35 an independent contractor should be able to work exactly as stated independently without supervision, therefore FI(R) cannot be self employed.
Last edited by portsharbourflyer; 4th Mar 2008 at 21:15.
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As a self-employed freelance instructor who is vat registered I can correct a few misunderstandings...
You do not have to register a limited company to be vat registered. I operate my business as a "sole trader". The words "sole trader" have a particular meaning for inland revenue purposes. For example, your business can have employees whos wages you pay, but still be a "sole trader" for taxation.
Because I am vat registered, I can claim back the vat on business expenses, but I have to charge vat at 17.5% on all my invoices. This is no problem when I do work for any flying school, because they can in turn claim the vat back, so I am no less competitive than any other freelance instructor.
However, when I charge students directly for instruction, for example when an owner is converting to a new type, I absorb the vat and quote a vat-inclusive rate to the student. In fact I don't even mention vat to the student, but I have to hand nearly £15 in every £100 over to Customs and Excise.
Overall, I choose to remain vat registered because it suits the way I work and it suits the companies which provide the bulk of my income.
With any vat queory, the best plan is to telephone the vat helplines. Contrary to popular belief, I have always found them very helpful and straightforward to deal with. However, I always write notes of the conversation at the time, and always get the full name of who I speak to.
Finally, if you are just starting as an instructor, I wouldn't think it worth the extra paperwork to become vat registered, and it will not be relevent to you if you get employment (c.f. freelance work) with a flying school.
You do not have to register a limited company to be vat registered. I operate my business as a "sole trader". The words "sole trader" have a particular meaning for inland revenue purposes. For example, your business can have employees whos wages you pay, but still be a "sole trader" for taxation.
Because I am vat registered, I can claim back the vat on business expenses, but I have to charge vat at 17.5% on all my invoices. This is no problem when I do work for any flying school, because they can in turn claim the vat back, so I am no less competitive than any other freelance instructor.
However, when I charge students directly for instruction, for example when an owner is converting to a new type, I absorb the vat and quote a vat-inclusive rate to the student. In fact I don't even mention vat to the student, but I have to hand nearly £15 in every £100 over to Customs and Excise.
Overall, I choose to remain vat registered because it suits the way I work and it suits the companies which provide the bulk of my income.
With any vat queory, the best plan is to telephone the vat helplines. Contrary to popular belief, I have always found them very helpful and straightforward to deal with. However, I always write notes of the conversation at the time, and always get the full name of who I speak to.
Finally, if you are just starting as an instructor, I wouldn't think it worth the extra paperwork to become vat registered, and it will not be relevent to you if you get employment (c.f. freelance work) with a flying school.
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QNH1013... thanks for your input.
I'm just starting out on the ATPL groundschool, as well as hour building, prior to CPL/FI, so hopefully becoming VAT registered will be worth doing the paperwork for at this stage. The only worry I still have is, as you mention, becoming employed by a school following my training, meaning HMRC will want all the VAT I've claimed back, plus interest. It's a difficult thing to consider as I have, of course, next to no idea where I will be employed once I've got my tickets.
In your opinion, is it reasonable to suggest that I can market myself, and survive financially, as a wholly self-employed instructor? It's whether this is better than forgetting about the VAT thing and allowing for the possibility of a salaried position when I'm qualified.
Any thoughts you care to share on the topic, from your experience, would be greatly appreciated. PM if you wish. Thanks.
I'm just starting out on the ATPL groundschool, as well as hour building, prior to CPL/FI, so hopefully becoming VAT registered will be worth doing the paperwork for at this stage. The only worry I still have is, as you mention, becoming employed by a school following my training, meaning HMRC will want all the VAT I've claimed back, plus interest. It's a difficult thing to consider as I have, of course, next to no idea where I will be employed once I've got my tickets.
In your opinion, is it reasonable to suggest that I can market myself, and survive financially, as a wholly self-employed instructor? It's whether this is better than forgetting about the VAT thing and allowing for the possibility of a salaried position when I'm qualified.
Any thoughts you care to share on the topic, from your experience, would be greatly appreciated. PM if you wish. Thanks.
Educated Hillbilly
While my previous posts refer to the IR35 compliance for those registered as Ltd companies, I hadn't considered the sole trader case.
However I would still argue a similar case, that even for to be self employed you have to be able to control your own working hours, a restricted instructors hours are still determined by the supervising instructor. That is he/she cannot continue to work if the supervising FI chooses to leave early.
Therefore R44, my interpretation of the rules is that you would only be able to register as a sole trader when you have your restriction lifted. This means your intitial terms as a instructor would have to be on an employed status.
However I would still argue a similar case, that even for to be self employed you have to be able to control your own working hours, a restricted instructors hours are still determined by the supervising instructor. That is he/she cannot continue to work if the supervising FI chooses to leave early.
Therefore R44, my interpretation of the rules is that you would only be able to register as a sole trader when you have your restriction lifted. This means your intitial terms as a instructor would have to be on an employed status.
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That may be the case, but what concerns me is the availability of instructor jobs in salaried, employed positions. The impression I have received so far, which may of course be wrong, is that it is the norm for instructors to be self-employed.
If they are considered self-employed by the flying school, and are thus paid in this capacity, how can HMRC argue that they are not self-employed for tax purposes?
I guess I need input from more instructors on their employment status and how this affects their taxation. It seems to me that disallowing restricted FIs the ability to be classed as self-employed purely because of an experience-based technicality dictated by the CAA would be a proper stitch-up. However, given the accounts of several people on here that I have recently read, I would suggest this isn't actually the case.
If they are considered self-employed by the flying school, and are thus paid in this capacity, how can HMRC argue that they are not self-employed for tax purposes?
I guess I need input from more instructors on their employment status and how this affects their taxation. It seems to me that disallowing restricted FIs the ability to be classed as self-employed purely because of an experience-based technicality dictated by the CAA would be a proper stitch-up. However, given the accounts of several people on here that I have recently read, I would suggest this isn't actually the case.
Educated Hillbilly
Yes there are a number of schools I expect where FI(R)s may be working on self employed basis, does not mean this is legal or correct.
It is employers attempting to cut costs and avoiding having to give employees the usual rainge of benefits, plus it cuts down on administration costs.
The inland revenue have not the time or resource to assess every single self employed/independent contractor for compliance with rules, it is up to the individual to comply, due to this, several employers and employees can get away with bending the rules. However when I worked in the Engineering sector once in a while a contractor would be audited for compliance to IR35. If deemed not to comply some of these contractors would face back tax bills of up to £30-60,000 (obviously Eng contractors earned more than instructors so these amounts of back tax could amount in about 5 years).
Chances are you won't get audited but if you do it will be you who will face the consequences, not the company employing your services.
There are reasons why Ryanair put all pilots on the Brookfields contract, because it saves the company a reasonble amount of money having few, Irish employment seems to allow this ( I have no idea how Irish tax laws work) but in under the UK rules they would all be deemed "disguised" employees.
It is true that there are not many salaried positions around for instructors, however the majority of instructors I know on flight pay only arrangements (was one myself until very recently, I was paid a combination of retainer and flight pay) were still employed and paid tax via the PAYE system.
It is employers attempting to cut costs and avoiding having to give employees the usual rainge of benefits, plus it cuts down on administration costs.
The inland revenue have not the time or resource to assess every single self employed/independent contractor for compliance with rules, it is up to the individual to comply, due to this, several employers and employees can get away with bending the rules. However when I worked in the Engineering sector once in a while a contractor would be audited for compliance to IR35. If deemed not to comply some of these contractors would face back tax bills of up to £30-60,000 (obviously Eng contractors earned more than instructors so these amounts of back tax could amount in about 5 years).
Chances are you won't get audited but if you do it will be you who will face the consequences, not the company employing your services.
There are reasons why Ryanair put all pilots on the Brookfields contract, because it saves the company a reasonble amount of money having few, Irish employment seems to allow this ( I have no idea how Irish tax laws work) but in under the UK rules they would all be deemed "disguised" employees.
It is true that there are not many salaried positions around for instructors, however the majority of instructors I know on flight pay only arrangements (was one myself until very recently, I was paid a combination of retainer and flight pay) were still employed and paid tax via the PAYE system.
Last edited by portsharbourflyer; 5th Mar 2008 at 12:12.
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Firstly, to be self-employed in the eyes of the revenue, you have to have more than one ‘major’ source of invoiced income. That cannot be a salaried job plus a bit of part time flying instruction or whatever.
In addition, to be a self employed instructor, invoicing several students, surely this would involve you to become fully and personally approved and fully insured for public liability etc etc would it not? (that is a question, not a statement of fact)
The advantage of being VAT registered is very much a two-way thing and advice should be taken. There are a number of ‘levels’ of VAT registration such as cash accounting etc and it is not that simple.
If your VAT return shows one-way traffic you will very quickly find yourself under the microscope and could end up paying back the lot.
The VAT people have immense powers, and becoming VAT registered to exploit a perceived loophole should be avoided at all costs!
Salaried jobs ARE out there....Keep life simple and go down that route would be my advice!!
Tangling with the VAT man is not a good idea, they do not mess about, and know every trick in the book… backwards.
Now, to go back to Andy's question...to claim back VAT on a purchase, it must be directly related to the activities for which your company is registered for VAT...and I bet it's not!!.... Sorry!
In addition, to be a self employed instructor, invoicing several students, surely this would involve you to become fully and personally approved and fully insured for public liability etc etc would it not? (that is a question, not a statement of fact)
The advantage of being VAT registered is very much a two-way thing and advice should be taken. There are a number of ‘levels’ of VAT registration such as cash accounting etc and it is not that simple.
If your VAT return shows one-way traffic you will very quickly find yourself under the microscope and could end up paying back the lot.
The VAT people have immense powers, and becoming VAT registered to exploit a perceived loophole should be avoided at all costs!
Salaried jobs ARE out there....Keep life simple and go down that route would be my advice!!
Tangling with the VAT man is not a good idea, they do not mess about, and know every trick in the book… backwards.
Now, to go back to Andy's question...to claim back VAT on a purchase, it must be directly related to the activities for which your company is registered for VAT...and I bet it's not!!.... Sorry!
Last edited by clear prop!!!; 5th Mar 2008 at 22:23.
