IO540

Briefly, this is a tax on assets owned by a limited company, calculated as a benefit equal to 20% of the purchase cost (or market value?) of the asset, each year. Quite a potential problem for groups operating an aircraft inside a limited company.

I know a number of groups have done individual deals with the Revenue on this. I also found a post here by "overclock" of 12th January 2004 suggesting that UK AOPA did a deal with the Revenue to exempt aircraft groups from BIK tax, subject to certain exemptions. I found this in an old note which I still have. I am not a member of AOPA - does anybody know any more details on this deal?

The standard Revenue web page which has been fairly widely relied on is

http://www.hmrc.gov.uk/manuals/senew/SE21004.htm

which is pretty clear, but the Revenue likes to wash their hands of this page, saying it applies only to a business which can be proven (retrospectively, obviously) to have been set up to make a profit. This conflicts with the "AOPA deal" mentioned above.

Whirlygig

Benefits in kind are applicable to employees of any business; not just limited companies. Therefore, the shareholders of a limited company are not employees and I wouldn't have thought the BiK legislation was even applicable.

Cheers

Whirls

Mike Cross

What's BIK to do with whether or not it's a Limited Company? You can get clobbered for BIK on any business entity, not only that, if you are VAT registered then any supply to yourself is subject to VAT as well. There's no point in setting up a UK Ltd Co to try and save on tax or VAT because you only invite investigation. Where it would score is in limiting your liability. In the main, providing there has been no fraud or other illegal trading the shareholders liability is limited to the value of their shares. However the corollary of this is no-one in their right mind gives credit to a Ltd Co whose total capitalisation is ten shares of £1 each.

It helps if you go back to the origin of companies, which arose as a means of financing expeditions to foreign parts. It was a "Company of Adventurers" that would be set up to finance an expedition. Subscribers would buy shares in the company and when it was wound up at the conclusion they would share in the proceeds in proportion to their shareholding. If a dividend was declared during the life of the company that would also be distributed in proportion to shareholding.

Edited to add that Whirly's right, but then shareholder benefits are also taxable.

bookworm

Is that from your own correspondence or something else?

IO540

It's a case I am pretty familiar with.

It's likely going to go to the general commissioners for a ruling.

I believe that the inspector in question offered one concession, which is that the business is exempt from BIK if all the pilots own the aircraft between them. This may be the AOPA concession I referred to.

The Revenue page referred to, which is an internal guidance note for their inspectors, doesn't mention this. I suspect a lot of people have done individual deals, and obviously they won't be advertising them.

If this is upheld, it's obviously worrying for groups that operate on the basis of somebody purchasing a plane, and then a number of others renting it freely. In a way, the Revenue has got you by the goolies; if your customers are at an arm's length then you will get done for BIK; if OTOH they are all co-owners then it's obviously not a real business anyway.

It's possible this particular inspector is just being aggressive, of course. This is standard Revenue procedure these days. Jump on somebody really hard and try to get a settlement of some sort, then close the case and move on to the next file. Racehorses, yachts and planes are obvious targets, and politics of envy is never too far away.

Whirlygig

What sort of aircraft group is this? Benefits in kind taxation is only applicable to employees. I really don't understand this scenario and cannot see any problem. There may be other taxation pitfalls but I can't see how BiK is one of them.

If a company wants to "give away" goods/services to its customers then that is disallowable for corporation tax and would probably attract VAT anyway (i.e. pay over the VAT that would have been collected had the customer paid a market price).

A company pays corporation tax on its profits. Employees pay benefit in kind tax (income tax) on any benefit received from their employer. A customer is not a employee.

Cheers

Whirls

IO540

A rental customer is safe, yes, but the poor sod who runs the company, who bought the aeroplane (and who is the Director, generally) is exposed to BIK.

What the Revenue really don't like is the common enough case where the business owner is also a private pilot. Again, this is not the law; the mere fact that the asset is available to the Director (or the employee) triggers the BIK liability. And of course many or most businesses are run by individuals who happen to have a personal interest in the activity - a bit mad otherwise to go into a business which you hate. But it makes a great deal of difference to how provocative the Revenue regards it. They don't like what to them looks like a "hobby business".

When I find out more I will post more details. In the meantime, back to my original Q: does anybody know what deal AOPA struck with the Revenue?

Whirlygig

Firstly, there are two situations; one where a group of people set up a limited company purely for the purposes of running their own aircraft and the second where a company/business (say, a construction company) owns an aircraft as one of the directors holds a PPL.

In the first case where say, four chaps set up a limited company to buy and aircraft for £10,000; each stumping up £2,500. This will be the share capital of the company (unless they want them as loans but little odds). Each shareholder will pay for fuel and presumably pay an hourly amount into a maintenance reserve. In this scenario, each shareholder is paying what it costs (in effect) to fly the aircraft and so there is no benefit; what are they getting for “free”?

In the second case, the aircraft is financed completely from the profits of this fictitious construction company and the director uses the aircraft to fly himself around on holiday and maybe home. It is very little different to having a company car. This is tax allowable on the company but taxable on the employee as a benefit in kind and, quite frankly, deserves to be. However, should this PPL-holding director use the aircraft to fly customers around as a PR exercise (and, for argument’s sake can we’ll not get into the issue of whether his licence allows it), then that will be allowable on both the company and director as long as a legitimate business case can be demonstrated.

It sounds to me, in the example given, that someone is running an aircraft for hire but not contributing themselves to the running of it. Yup - tax him - he's getting something for nothing. We won't worry about his AOC!!

Cheers

Whirls

S-Works

You one of Blairs "Babes" then Whirls?

Thats what I love about socialist government, tax the self starters to pay for the illegal imigrants and the 14 year old girls who can't keep there legs closed. Lets not make everyone equal by making the losers improve themselves lets just take it off those who have made the effort......

IO540

Whirlygig

I am pleased to inform you that you have substantially mis-speculated on the actual situation.

BIK arises through a limited company (not a partnership) owning an asset to which an employee or a director has access for personal use. That is the requirement for BIK to arise, nothing more. The person doesn't have to actually to make any use of the asset.

Some of what you wrote is common sense but unfortunately it isn't the legal position.

There are some published exemptions, some being listed on that URL I posted.

Slopey

I thought that as a standard PPL holder, one of the conditions is that you are specifically prevented from flying an aircraft owner by your employer? So even if you were taxed on it, you could'nt fly it as it's owned by the company?

Justiciar

Benefits in kind are non salary benefits which are taxed in the hands of an employee or, in the case of a limited company, a director. Any employee, whether they work for a limited company or a partnership, is liable to taxation on a benefit in kind. Obviously an employer who is not a limited company does not have directors but this then can make it difficult for a proprietor, e.g. a sole trader, to get an aircraft's operating costs allowed as an tax deduction when assessing the taxable profits of the business. The difference in treatment of a director arises from the fact that a director is a separate legal personality from the Company of which he is a director. This consideration does not apply to unincorporated bodies, such as partnerships. Some of my staff get taxed on benefits in kind, though I do not trade through a limited company.

I don't believe you can have a BIK charge arising unless you are an employee (or director). I suspect that for it to arise with a director they also have to be an employee - most directors in small companies are also employees of the Company.

Slopey

Actually - I've just re-read CAP393 Para 161(1) & (2) which would seem to indicate that it would be possible to fly a corporately owned a/c as long as there was no money changing hands aside from direct costs, and that any person carried is under no legal obligation to be carried.

(further edit)

See:
http://www.caa.co.uk/docs/122/summar..._transport.pdf
5.4 Exception No 4 – Recovery of direct costs (motor mileage) (Article 161)

So you can recover the direct costs as expenses for travel - it does'nt mention if the company owns the aircraft however?

Could someone enlighten me? Just because in a few years time there's a fair chance I'd go this route. And if it's permissable, I'd be subject to BIK tax as I'm a director of the company?

potkettleblack

The 2nd paragraph of the link you posted to the IR website implies to me that as long as you are not getting a better "deal" than anyone else in the group then no BIK arises?

Failing that and subject to your insurance arrangements you could let someone trustworthy outside of your group fly the aircraft for a few hours at the same effective rate as what you pay and then you can prove to the inspector that joe public gets the same deal so there is no preferential treatment from your scheme of arrangment.

As to the form of the entity, as others have said above it shouldn't matter whether it is a company, partnership, sole trader or anything else inbetween. If tax on BIK's is payable then it doesn't matter how you go about it. Think of your local plumber who might have a partnership with the wife and lets the lads use the van or car for private use. Assuming they declare it correctly then BIK's would be payable.

Whirlygig

Absolutely not - I think you'll find that the BiK "rules were a Thatcherite invention - politics doesn't come into it - people dreaming up fancy schemes for tax evasion does!

If I have substantially misspeculated, I apologise. I DID say that I was finding it difficult exactly HOW this situation could arise. And still do. Which of my two cases applies in your posts? If the second, The asset could easily be made "not available" by having the key locked away and a stipulation in the director's contract that the aircraft was not for personal use. If the first, then each "director/shareholder" should be contributing equally.

I suspect that if this case has gone to the Commissioners then there is a lot more to it than meets the eye and is not being told here.

Cheers

Whirls

A and C

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

If your company owns an aircraft there is no BIK if you use the aircraft only for company business, but this must be strictly business use onlyif your wife gose along in a spare seat for a little shopping then you are at risk of BIK tax for her travel.

The best way to keep things simple is to rent the aircraft from your company if you want to fly a non-business trip but the rental price must reflect the real operating cost per hour if it fails to do so the tax man may have a nasty surprize for you in the form of a large BIK bill as they don't like it if you try to take the p**s and will drop the BIK bill on you and let you fight it if you can !

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business.

I cant see the flying hours as a BIK, after all if I am moving an aircraft to a maintenance base if I as a director of the company can't move the aircraft then I would have to pay someone to do it and cost the company yet more money.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.
The VAT man was a little unsure of by business at first and before I got the VAT back on the aircraft there was an investigation of how my business worked but as soon as it was seen that this was a true business and not some sort of tax fiddle the whole attitude changed and they have been most helpfull.

Lister Noble

Very simple.
Ask your accountant.
If he is in doubt then ask the IR/Customs bods.
Better to be right than reap a very nasty and expensive surprise.
Over the years I have always played it straight with my BIK's (both as normal employee and director of my own company, and it's worked out well in all cases.
Lister

IO540

So far nobody here has answered my original question..... it was a very simple question.

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

Incorrect.

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business

That should work but in the case I refer to it is being challenged.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.

Ah, but how do you define the bit in bold? Think about it!

IO540

So far nobody here has answered my original question..... it was a very simple question

The tax man can't tax you on something that you have not had, so BIK tax can only apply to you if you have had some sort of BIK.

Incorrect.

The three aircraft that my business has are rented to a flying club and to avoid the BIK risk if I want to fly one of my companys aircraft I rent it from the club unless it is strictly company business

That should work but in the case I refer to it is being challenged. That was an aircraft rental business, set up on professional advice, checked out early on by both the Revenue and the C&E inspector, and run completely above board for a number of years. Everybody flying was invoiced at £X/hr+VAT, access booked on equal terms via a booking website. Of course an accountant is involved, but he is not a pilot and doesn't know about some deal which AOPA (or somebody else) might have done with the Revenue.

I can see why the tax man has a go at a lot of companys that own aircraft because a lot of people use it to reduce the tax on flying and get back the VAT when they are not trading in the true sence of the word.

Ah, but how do you define the bit in bold? Think about it!

What to you is a genuine business which has perhaps not attracted as many customers as you might have wished, is to somebody else a sham.

The Revenue like to make up their own definitions as they go along. The law exists to stop them doing that. That Revenue BIK website is pretty clear.

Whirlygig

IO540, from what you have told us, something doesn't quite gel. What are the real facts of this case because, as I see it, there must be more to it if what you are saying is true. If you are saying that commonly accepted taxation law is not the case, then can you give us the situation that has led to this?

An asset "available" for use can easily be got round! One company for whom I worked had a strict clause in employment contracts that the company vans were not for private use; hence the operatives did not get taxed on the benefit in kind. They could have been driven for private use I suppose but the Inland Revenue (as they were then) were quite happy with our contracts. If an employee was cuaght out in a van after hours they were disciplined.

If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind.

Cheers

Whirls