Benefit in Kind tax
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Originally Posted by Whirlygig
An asset "available" for use can easily be got round! .......If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind.Whirls
Agreed there can be no benefit in kind if: a) the asset is not made available by the company for your personal use; and b) you don't actually use it in a personal capacity! The problem arises when some personal use is made ... whereupon the Revenue will assess the b-i-k not on the 'cost' of your actual usage but instead on the 'opportunity value' of its year-round 24/7 availability to you. Any monies paid by you to the Company for 'rental' of the asset can of course be netted-off their b-i-k calculation.
My direct experience and that of others I know is of the Revenue starting with a truly extreme position but being prepared to negotiate down from that. Where they end up is, I believe, very much at the discretion of the individual Inspector (or, at least, it used to be). I saw no evidence to suggest my Inspector was working to quantitative guidelines, but that was quite number of years ago and maybe things have changed.
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Originally Posted by Islander2
Agreed there can be no benefit in kind if: a) the asset is not made available by the company for your personal use; and b) you don't actually use it in a personal capacity! The problem arises when some personal use is made ... whereupon the Revenue will assess the b-i-k not on the 'cost' of your actual usage but instead on the 'opportunity value' of its year-round 24/7 availability to you. Any monies paid by you to the Company for 'rental' of the asset can of course be netted-off their b-i-k calculation.
Cheers
Whirls
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Islander2 is right on the money, as far as reality is concerned:
My direct experience and that of others I know is of the Revenue starting with a truly extreme position but being prepared to negotiate down from that. Where they end up is, I believe, very much at the discretion of the individual Inspector (or, at least, it used to be). I saw no evidence to suggest my Inspector was working to quantitative guidelines, but that was quite number of years ago and maybe things have changed
Things have not changed. They still go for the throat, and then might negotiate downwards. I am not an accountant but the story I hear time and time again is that the settlement bears more relation to the proximity of the inspector's retirement, how many points he has accumulated on his bonus scheme, etc than to any facts of the case.
There is a particular difficulty for anybody who is a Controlling Director: he has access to the asset 24/7 by virtue of being such. Having a contract preventing him from having access is a bit silly, even if this is effective with normal employees.
This is obviously a worrying scenario for many groups. I will make sure a more detailed update is posted when I know more. Current indications are that this is a particular inspector being aggressive, rather than an official national policy of going after certain types of asset.
Edit: I did find out the answer to my original question. The AOPA deal applies to groups only i.e. where all flyers own a piece of the asset. This inspector did indicate that the Revenue web page posted earlier applies in such a situation.
My direct experience and that of others I know is of the Revenue starting with a truly extreme position but being prepared to negotiate down from that. Where they end up is, I believe, very much at the discretion of the individual Inspector (or, at least, it used to be). I saw no evidence to suggest my Inspector was working to quantitative guidelines, but that was quite number of years ago and maybe things have changed
Things have not changed. They still go for the throat, and then might negotiate downwards. I am not an accountant but the story I hear time and time again is that the settlement bears more relation to the proximity of the inspector's retirement, how many points he has accumulated on his bonus scheme, etc than to any facts of the case.
There is a particular difficulty for anybody who is a Controlling Director: he has access to the asset 24/7 by virtue of being such. Having a contract preventing him from having access is a bit silly, even if this is effective with normal employees.
This is obviously a worrying scenario for many groups. I will make sure a more detailed update is posted when I know more. Current indications are that this is a particular inspector being aggressive, rather than an official national policy of going after certain types of asset.
Edit: I did find out the answer to my original question. The AOPA deal applies to groups only i.e. where all flyers own a piece of the asset. This inspector did indicate that the Revenue web page posted earlier applies in such a situation.
Last edited by IO540; 8th Aug 2006 at 06:51.
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Originally Posted by 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!
Another example of this is dividends being issued by small businesses. It's ok for LARGE companies to do so, but SMALL companies? that's another matter, even though they run under the same regime.
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Originally Posted by SkyHawk-N
It doesn't just come down to BIK rules, it is how they are interpretted and enforced. Unfortunately the IR/HMCE 'hounds' were released, well and truly released, by this current government. Whirlygig, 'tax evasion' is a VERY strong term to use for business practices which have been and are completely legal under corporate rules and law. It's unfortunate that the IR/HMCE doesn't like it and dreams up ways of interpretting the law to suit themselves.
Another example of this is dividends being issued by small businesses. It's ok for LARGE companies to do so, but SMALL companies? that's another matter, even though they run under the same regime.
Another example of this is dividends being issued by small businesses. It's ok for LARGE companies to do so, but SMALL companies? that's another matter, even though they run under the same regime.
My quote was directed at someone who decided they knew what my politics were and not a general statement. Again, if people are going to say that HMR&C are doing this and that, then please give details so that a) others can understand the relevancy of their situation (if it's true) and b) gives me a fighting chance of checking the relevant legislation.
Cheers
Whirls
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IO540
I think that the tax man has a very good idea if what is "real trading" and also has a good idea of what is a tax fiddle.
As I said above I lease aircraft to a flying club, the club has day to day control of the aircraft, the only time that I fly the aircraft is to and from the maintenance base. I wanted to use one of the aircraft to do a rating renewal so in this case I rented the aircraft from the club.
I find it very hard to find any way that BIK taxation could apply in this case, when the business was started the VAT people had a very hard look at my business. It was quite clear that they suspected the whole thing was set up as some sort of tax fiddle but very quickly came to the conclusion that this was not so.
I have had no further visits from the tax or VAT people but may be this is because the lady from the VAT found the airfield "rather noisy".
As I said above I lease aircraft to a flying club, the club has day to day control of the aircraft, the only time that I fly the aircraft is to and from the maintenance base. I wanted to use one of the aircraft to do a rating renewal so in this case I rented the aircraft from the club.
I find it very hard to find any way that BIK taxation could apply in this case, when the business was started the VAT people had a very hard look at my business. It was quite clear that they suspected the whole thing was set up as some sort of tax fiddle but very quickly came to the conclusion that this was not so.
I have had no further visits from the tax or VAT people but may be this is because the lady from the VAT found the airfield "rather noisy".
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Originally Posted by Whirlygig
Eh?
My quote was directed at someone who decided they knew what my politics were and not a general statement. Again, if people are going to say that HMR&C are doing this and that, then please give details so that a) others can understand the relevancy of their situation (if it's true) and b) gives me a fighting chance of checking the relevant legislation.
Cheers
Whirls
My quote was directed at someone who decided they knew what my politics were and not a general statement. Again, if people are going to say that HMR&C are doing this and that, then please give details so that a) others can understand the relevancy of their situation (if it's true) and b) gives me a fighting chance of checking the relevant legislation.
Cheers
Whirls
I believe anyone who runs a small business (I am involved with IT myself) will understand where my posting is coming from. In general, the HMR&C have been tasked with getting as much tax out of everyone as they can. Things like BIK, dividends, expenses will all come under scrutiny by them as these result in 'lost' revenue to them. Tax evasion is used by those in the know and the majority of this will never be recovered. Us lesser beings are 'low hanging fruit' and we recieve a lot of the HMR&C attention.
As for checking the relevant legislation, there's loads of it and it's getting worse each year!
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As for checking the relevant legislation, there's loads of it and it's getting worse each year!
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Whirls
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There does seem to be a lot of confusion here over what a benefit in kind is. It cannot apply to a group owned aircraft, whether the group is unincorporated or a company, since in either case the members/shareholders are bearing all the costs of operating the aircraft. There is therefore no benefit to be taxed.
If the group leases the aircraft to a flying club or similar to reduce its overheads than there is a potential tax charge on normal principles, in the event that the lease income exceeds the operating costs for the year. That is unlikely in most situations. Were it to happen then having a company, with a corporation tax exemption on the first £10k of profit, might be an advantage over a group, whose members would pay tax at their individual rates on any profit from the operation. However, this scenario is so unlikely that it is probably irrelevant to most groups.
However, if you, or a company of which you are director and/or an employee seeks to run an aircraft for its business, offsetting or trying to offset the cost of doing so against gross profit of the business, then the Revenue will look at benefits in kind which you as the employee or director enjoy by having an aircraft at your disposal. Even if every flight is for business I have heard that the Revenue argue that there is a personal benefit by virtue of it enabling the pilot to retain currency on the aircraft or even simply enjoy the pleasure of flying at low cost. This then affects your personal taxation quite dramatically.
If the group leases the aircraft to a flying club or similar to reduce its overheads than there is a potential tax charge on normal principles, in the event that the lease income exceeds the operating costs for the year. That is unlikely in most situations. Were it to happen then having a company, with a corporation tax exemption on the first £10k of profit, might be an advantage over a group, whose members would pay tax at their individual rates on any profit from the operation. However, this scenario is so unlikely that it is probably irrelevant to most groups.
However, if you, or a company of which you are director and/or an employee seeks to run an aircraft for its business, offsetting or trying to offset the cost of doing so against gross profit of the business, then the Revenue will look at benefits in kind which you as the employee or director enjoy by having an aircraft at your disposal. Even if every flight is for business I have heard that the Revenue argue that there is a personal benefit by virtue of it enabling the pilot to retain currency on the aircraft or even simply enjoy the pleasure of flying at low cost. This then affects your personal taxation quite dramatically.
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I have heard that the Revenue argue that there is a personal benefit by virtue of it enabling the pilot to retain currency on the aircraft or even simply enjoy the pleasure of flying at low cost. This then affects your personal taxation quite dramatically.
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Maxflyer:
You are right and your example shows the ultimate false logic of the Revenue's position. I know of one chap who's business plans have been seriously hampered by the Revenue's attempt to charge him with the full cost of his company aircraft. He flies all over Europe strictly on business. The revenue argument was that there was a benefit in kind, not only because he could keep current on his aircraft (a twin) but because there was likely to be a private element to his trips. They suggested he might do a bit of sightseeing or having a social meal out!!
There is no logical reason why a flying instructor flying his employer's aircraft and deriving pleasure from his instructional flights should not be charged a benefit in kind whereas a business man flying his employers aircraft for business is. What about, say, a gof pro who uses his employer's golf course of teaching and derives not only personal satisfaction but the opportunity of refining his skills? The list is endless.
I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts.
You are right and your example shows the ultimate false logic of the Revenue's position. I know of one chap who's business plans have been seriously hampered by the Revenue's attempt to charge him with the full cost of his company aircraft. He flies all over Europe strictly on business. The revenue argument was that there was a benefit in kind, not only because he could keep current on his aircraft (a twin) but because there was likely to be a private element to his trips. They suggested he might do a bit of sightseeing or having a social meal out!!
There is no logical reason why a flying instructor flying his employer's aircraft and deriving pleasure from his instructional flights should not be charged a benefit in kind whereas a business man flying his employers aircraft for business is. What about, say, a gof pro who uses his employer's golf course of teaching and derives not only personal satisfaction but the opportunity of refining his skills? The list is endless.
I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts.
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Perhaps one of the differences would be licence type? An instructor with a CPL may be considered to be less likely to be deriving pleasure from the flying and, as a commercial pilot with a qualification specifically designed to earn money from flying, it may be considered that currency is not an issue.
The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.
Cheers
Whirls
The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.
Cheers
Whirls
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Perhaps one of the differences would be licence type? An instructor with a CPL may be considered to be less likely to be deriving pleasure from the flying and, as a commercial pilot with a qualification specifically designed to earn money from flying, it may be considered that currency is not an issue.
The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.
Whirly, I don't want to sound impolite but am I right in that you might be a trainee or junior accountant, or perhaps somebody working on the periphery of the profession? But probably not somebody who routinely works with corporate clients well above the builder/decorator grade, working with them in their various run-ins with the Revenue and C&E?
What you wrote, about not being allowed to have fun when running a business, and having to get a CPL to avoid the accusation of enjoying flying, is an absolute scream although I am sure you did not mean it that way. It cuts to the heart of the way the Revenue think. If they had their way, they would shut down (or stick extra tax on) any business whose proprietor is (or looks like he is) enjoying himself.
I've been in business (manufacturing) for many years so inevitably have picked up quite a lot of bits and pieces on legal and financial matters. One cannot run successfully without that knowledge; one cannot get anywhere while sticking all receipts into a bin liner and then chucking it at an accountant to sort out at the year end like many builders etc do.
But the more I hear about this case, and others, the more I discover that the rules are actually very vague, that the Revenue quite literally doesn't like the idea of anybody getting enjoyment out of their business, that politics of envy is very much alive and kicking here, that some inspectors are way out of line and get away with it only because their targets eventually cut a deal, and they attack certain types of businesses with great gusto hoping to get a settlement of some sort which doesn't have to bear any relation to the facts of the case.
As Justiciar points out most targets of enquiries or investigations do a private deal with their local inspector. Hardly suprising since the next step outside the Revenue apparatus is the High Court which costs four figures plus per day and only the biggest players (say, some dispute over the tax treatment on £100M's worth of a certain type of biscuit you have been making for the last 10 years) will bother.
This "make the target sh1t himself for a few months and then throw him a last minute deal" policy so much beloved of the present day Revenue ensures that few clear national rules come into the public domain. It's all very well for some people to pontificate that "one can immediately tell if a business is a sham" etc etc but actually one can't do that except in the most obvious cases, and the Revenue do not restrict themselves to those, by a very long way.
Of the tax evaders, only a mug is going to run an obvious sham. Everybody else will be more clever at it, and is going to be very close to something bona fide. So the Revenue can pick a lot of real businesses apart. Whereas if he had clear published rules then everybody would know what is allowed and what is not.
Finally, if "you" earn £10k p.a. then it's quite possible that "you" regard anybody earning say £100k p.a. (and flying a plane too
) as a crook who "must be" running a sham business. That is very much a feature of the present-day British mentality, too.
That's my bit for defence of private enterprise
The same however, might not be considered with a PPL holding pilot. So, in these cases, it would be interesting to know the licence type.
Whirly, I don't want to sound impolite but am I right in that you might be a trainee or junior accountant, or perhaps somebody working on the periphery of the profession? But probably not somebody who routinely works with corporate clients well above the builder/decorator grade, working with them in their various run-ins with the Revenue and C&E?
What you wrote, about not being allowed to have fun when running a business, and having to get a CPL to avoid the accusation of enjoying flying, is an absolute scream although I am sure you did not mean it that way. It cuts to the heart of the way the Revenue think. If they had their way, they would shut down (or stick extra tax on) any business whose proprietor is (or looks like he is) enjoying himself.
I've been in business (manufacturing) for many years so inevitably have picked up quite a lot of bits and pieces on legal and financial matters. One cannot run successfully without that knowledge; one cannot get anywhere while sticking all receipts into a bin liner and then chucking it at an accountant to sort out at the year end like many builders etc do.
But the more I hear about this case, and others, the more I discover that the rules are actually very vague, that the Revenue quite literally doesn't like the idea of anybody getting enjoyment out of their business, that politics of envy is very much alive and kicking here, that some inspectors are way out of line and get away with it only because their targets eventually cut a deal, and they attack certain types of businesses with great gusto hoping to get a settlement of some sort which doesn't have to bear any relation to the facts of the case.
As Justiciar points out most targets of enquiries or investigations do a private deal with their local inspector. Hardly suprising since the next step outside the Revenue apparatus is the High Court which costs four figures plus per day and only the biggest players (say, some dispute over the tax treatment on £100M's worth of a certain type of biscuit you have been making for the last 10 years) will bother.
This "make the target sh1t himself for a few months and then throw him a last minute deal" policy so much beloved of the present day Revenue ensures that few clear national rules come into the public domain. It's all very well for some people to pontificate that "one can immediately tell if a business is a sham" etc etc but actually one can't do that except in the most obvious cases, and the Revenue do not restrict themselves to those, by a very long way.
Of the tax evaders, only a mug is going to run an obvious sham. Everybody else will be more clever at it, and is going to be very close to something bona fide. So the Revenue can pick a lot of real businesses apart. Whereas if he had clear published rules then everybody would know what is allowed and what is not.
Finally, if "you" earn £10k p.a. then it's quite possible that "you" regard anybody earning say £100k p.a. (and flying a plane too
) as a crook who "must be" running a sham business. That is very much a feature of the present-day British mentality, too.That's my bit for defence of private enterprise
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I am a Chartered Accountant qualifying in 1991 and have worked in Public Practice as an auditor and tax accountant for 8 of those years. I was also the Finance Director of a £125 million turnover company. I have PM'd you with my name and membership number in case you don't believe me and I earn a damned sight more than £10k a year. Your comments are churlish!
My comment about the CPL goes back to A and C's remarks about "trading". If a pilot has a CPL then it was be more prima facie evidence that this "pilot/director" is in business rather than trying to get a hobby paid for through a company.
I asked you for the facts of this case about which you keep referring. You haven't given them. I am interested from a professional point of view. I have spent a long time protecting clients from getting into "scams" and "schemes" where there is a chance that it could come back and bite them on the bum.
I await your comment (and apology?) with interest.
Cheers
Whirls (not Whirly!)
My comment about the CPL goes back to A and C's remarks about "trading". If a pilot has a CPL then it was be more prima facie evidence that this "pilot/director" is in business rather than trying to get a hobby paid for through a company.
I asked you for the facts of this case about which you keep referring. You haven't given them. I am interested from a professional point of view. I have spent a long time protecting clients from getting into "scams" and "schemes" where there is a chance that it could come back and bite them on the bum.
I await your comment (and apology?) with interest.
Cheers
Whirls (not Whirly!)
Last edited by Whirlygig; 8th Aug 2006 at 15:22.
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That was a bit below the belt given that Whirls and a number of other folks have given you an abundance of free tax advice and in return have been furnished with vague and incomplete facts concerning your arrangement.
You bang on about some deal that AOPA have done but in order for that opinion to be relevant to your circumstances then you need to contact them directly and avail yourself of the minute detail. As I am sure you are aware the binding opinions given by HMRC are given on the basis of the facts provided to them and their interpretation of the relevant tax acts to those sets of circumstances. The fact of the matter is that if you want some water tight advice then you need to lay your cards on the table and write to the IR seeking a binding opinion. If I was in your position I would engage a decent tax practitioner with experience in the aviation sector rather than doing it yourself.
You bang on about some deal that AOPA have done but in order for that opinion to be relevant to your circumstances then you need to contact them directly and avail yourself of the minute detail. As I am sure you are aware the binding opinions given by HMRC are given on the basis of the facts provided to them and their interpretation of the relevant tax acts to those sets of circumstances. The fact of the matter is that if you want some water tight advice then you need to lay your cards on the table and write to the IR seeking a binding opinion. If I was in your position I would engage a decent tax practitioner with experience in the aviation sector rather than doing it yourself.
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There is no logical reason why a flying instructor flying his employer's aircraft and deriving pleasure from his instructional flights should not be charged a benefit in kind whereas a business man flying his employers aircraft for business is. What about, say, a gof pro who uses his employer's golf course of teaching and derives not only personal satisfaction but the opportunity of refining his skills? The list is endless.
I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts
I would love to hear from someone who has taken the Revenue on and won. The trouble is most of these cases are compromised - a level of understanding tends to be reached to avoid future problems, so the issue is never tested in the courts
There may not be much case law about how this duality affects BIK, but there is plenty affecting the Wholly & Exclusively rule.
One that immediately springs to mind was the guy making business trips to the city, and his wife came along too. She went shopping while he visited clients. When finished his business he picked her up and drove back down the country. Revenue claimed that the trip was partly for his wife's pleasure, and not wholly & exclusively for the purpose of the trade. The courts rightly in my opinion, threw that out. There are plenty more case surrounding this area.
While not directly relating to BIK, can help to give guidance where the only benefit derived is pleasure while doing your job.
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So it seems quite a few of us have come across the vagueries of HMR (& HMC) in the course of following CAA recommended practice of operating a/c through a limited company.
So much so that I guess some of us have engaged professional advisors (probably after the first official broohaha), who in my experience prove to be equally vague about the specific personal, corporate, tax and liability issues concerning aircraft operation, no matter how ninja they are as accountants on the whole.
My question is, as a community, and since most aircraft operations work on a similar basis, does anyone know of any practice specialising in such areas, or can anyone recommend any advisors who've 'been there' and 'done that'?
(btw I don't!)
So much so that I guess some of us have engaged professional advisors (probably after the first official broohaha), who in my experience prove to be equally vague about the specific personal, corporate, tax and liability issues concerning aircraft operation, no matter how ninja they are as accountants on the whole.
My question is, as a community, and since most aircraft operations work on a similar basis, does anyone know of any practice specialising in such areas, or can anyone recommend any advisors who've 'been there' and 'done that'?
(btw I don't!)
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is very similar to the requirement that all business expenses must be "Wholly & Exclusively for the purposes of the trade".
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My apologies, Whirls
This thread got a bit out of hand. My original Q was on the AOPA deal, and perhaps any other deals that may have been done in the years gone by.
It was never my intention to write tons about this particular case - this is a completely unsuitable forum for that, for a number of reasons.
Thank you all for your input.
This thread got a bit out of hand. My original Q was on the AOPA deal, and perhaps any other deals that may have been done in the years gone by.
It was never my intention to write tons about this particular case - this is a completely unsuitable forum for that, for a number of reasons.
Thank you all for your input.
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Originally Posted by Whirlygig
Not being funny here but isn't that what I said?
Cheers
Whirls
Cheers
Whirls
As I quoted, you actually said:"If the cost of private use of the asset is reimbursed to the company, then there is no benefit in kind."
And, as I said from my direct experience, that is categorically not the Revenue's position. Unless, that is, you would accept that the cost of 25 hours private use of an aeroplane per year equates to 20% of the accumulated capital cost of the aeroplane plus 50% of the annual fixed costs plus 100% of the variable costs for those 25 hours ... as in my case, where I was threatened with it being taken to the commissioners if I didn't agree to a benefit-in-kind of around £1,000 per hour (for my limited private usage) for a single-engine piston aeroplane despite paying 'normal' aircraft hire charges to the company for that usage!!
The aspect of the legislation that you are ignoring is summed up in the Inspectors letter to my advisors: "Sub-section 5 requires no more than that the asset is placed at the employees disposal. There is no requirement that the asset should be used."