Run flying group as LTD... VAT etc..
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Run flying group as LTD... VAT etc..
Evening all
I'm one of a group currently setting up. We've heard of a lot of other groups who go Ltd, and get VAT registered in order to claim the VAT back on things like fuel, hangarage, maintenance etc etc.. In order to do so, the company obviously has to do some business and charge customers VAT, and as one of us is a CPL we'll be doing some aerial photo and pleasure flight work.
I understand that the capital we put in to set everything up, buy the aircraft etc is just that, share capital and investment in the company. The thing I'm unsure of is the group members (directors) monthlies. Do we have to charge ourselves VAT on them? That would be somewhat of a downer
Sorry if this sounds like a lame question, I just don't know much about the world of companies and tax, and we don't have an accountant yet. If anyone has some easy answers to the tax basics, or some handy links which might enlighten me, I'd much appreciate it.
I'm one of a group currently setting up. We've heard of a lot of other groups who go Ltd, and get VAT registered in order to claim the VAT back on things like fuel, hangarage, maintenance etc etc.. In order to do so, the company obviously has to do some business and charge customers VAT, and as one of us is a CPL we'll be doing some aerial photo and pleasure flight work.
I understand that the capital we put in to set everything up, buy the aircraft etc is just that, share capital and investment in the company. The thing I'm unsure of is the group members (directors) monthlies. Do we have to charge ourselves VAT on them? That would be somewhat of a downer
Sorry if this sounds like a lame question, I just don't know much about the world of companies and tax, and we don't have an accountant yet. If anyone has some easy answers to the tax basics, or some handy links which might enlighten me, I'd much appreciate it.
niknak
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I am pretty sure that if the company turn over is above the VAT threshold, everything charged to or by the company is liable to VAT, which includes the charges you mention.
Personally, regardless of the members experiences of running businesses, I would employ the services of a decent accountant, it may cost you a few extra quid each month but at least you'd know where you are every month and when the Customs and Excise come calling, you shouldn't have any major problems.
Personally, regardless of the members experiences of running businesses, I would employ the services of a decent accountant, it may cost you a few extra quid each month but at least you'd know where you are every month and when the Customs and Excise come calling, you shouldn't have any major problems.
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If you register for VAT in order to reclaim VAT on purchases, then you have to charge VAT on all supplies and that includes the directors.
As niknak says, employ a good accountant. There was recently a rather heated discussion involving a ppruner and a group share run as a limited company. Because of the way it had been set up, the directors were also being clobbered for Benefits in Kind on their flying hours.
Get an accountant's advice BEFORE you set up the company as the structure is all important.
Cheers
Whirls
As niknak says, employ a good accountant. There was recently a rather heated discussion involving a ppruner and a group share run as a limited company. Because of the way it had been set up, the directors were also being clobbered for Benefits in Kind on their flying hours.
Get an accountant's advice BEFORE you set up the company as the structure is all important.
Cheers
Whirls
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As a general rule, if you have a company that looks like a hobby and claims VAT or claims VAT on all costs but through a 'creative' structure doesn't charge the owners VAT on everything (i.e. the monthlies), you are likely to have the pleasure of HMR&C's deepest attention
You can set up a Ltd for various tax and liability reasons but you may wish to find out about funding the aircraft by way of secured loans (from the share owners,) that way if there is a problem with the company you might (depending on the circumstances) end up with the aircraft. Also that way possible future members who can cover the cash flow but do not have the spare capital can borrow from the bank based on the security of the aircraft share and their own income. Not usually available for purchasing company shares. Might make resale of shares easier.
If you do go the Ltd route the secured loan thing might help with the VAT too. You would not have to include the depreciation or finance cost in the flying charge. Basically the extra VAT you end up paying is what would be the percentage on non VAt-able items when they are wrapped into the flying charge (eg, rent (if it is still VAT free in UK) and insurance etc.)
Definetily not an accountant but I did do this for something else once. Worked OK.
If you do go the Ltd route the secured loan thing might help with the VAT too. You would not have to include the depreciation or finance cost in the flying charge. Basically the extra VAT you end up paying is what would be the percentage on non VAt-able items when they are wrapped into the flying charge (eg, rent (if it is still VAT free in UK) and insurance etc.)
Definetily not an accountant but I did do this for something else once. Worked OK.
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Put simply, it is dodgy (under what appears current aggressive HMRC practices) to put an aircraft into a limited company, because of the Benefit in Kind rules.
Unless the company is set up as a proper full rental business, starting with a documented business plan (yes I know BPs aren't worth the paper they are written on but that's besides the point), a booking site ensuring equal access to all, etc. Miss out on any of these features and the employees/Directors better not go anywhere near any of the planes (better not even have a PPL, actually, because BIK is charges on access even if no private use actually took place) otherwise they are likely to get hit for Benefit in Kind.
There is little point in VAT registering unless you expect the rental revenue to exceed the mandatory reg limit (£55k?). Otherwise, you have to invoice VAT and that makes the flying 17.5% more expensive. Find a hangar owner, maintenance outfit, etc, that doesn't charge VAT and there is no need to reclaim it. Regards any VAT on the initial aircraft purchase, it's best to do it via Denmark.
The case I wrote about a while ago is probably going to the commissioners, but it's taken 18 months already.
Unless the company is set up as a proper full rental business, starting with a documented business plan (yes I know BPs aren't worth the paper they are written on but that's besides the point), a booking site ensuring equal access to all, etc. Miss out on any of these features and the employees/Directors better not go anywhere near any of the planes (better not even have a PPL, actually, because BIK is charges on access even if no private use actually took place) otherwise they are likely to get hit for Benefit in Kind.
There is little point in VAT registering unless you expect the rental revenue to exceed the mandatory reg limit (£55k?). Otherwise, you have to invoice VAT and that makes the flying 17.5% more expensive. Find a hangar owner, maintenance outfit, etc, that doesn't charge VAT and there is no need to reclaim it. Regards any VAT on the initial aircraft purchase, it's best to do it via Denmark.
The case I wrote about a while ago is probably going to the commissioners, but it's taken 18 months already.
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I'm director of a small Ltd company (nothing to do with flying) and you need a very good understanding of what you're doing. Even if you follow rules to the letter, you can still end up with hassles from HMRC and once your head has popped up above the parapets they can be a right pain.
Make sure you get good advice from an accountant who understands how all this works - not all accountants do. The benefits in kind can quickly erode any advantages that look attractive on paper if you don't fully understand how things work.
Make sure you get good advice from an accountant who understands how all this works - not all accountants do. The benefits in kind can quickly erode any advantages that look attractive on paper if you don't fully understand how things work.
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The benefits in kind can quickly erode any advantages
At 40% tax on 20% of the purchase cost, that is an understatement of the year
Let's say the Revenue go after you 5 years after you started the business which involves renting out a £200k plane. The BIK tax bill is going to be £80k, less amount made good for the proprietor's actual private flying.
The above is my understanding - correct me anybody if I have it wrong.
You can take the BIK tax on the chin and just pay it, if you do something of the order of 400 hrs/year or more. A lot of people do that with very high-end company cars (say £200k Ferraris) because it's cheaper to pay the tax than to run the car privately. But for most people this doesn't make sense.
The situation is less bad with some old banger of a plane, of course.
The thing is that the Revenue can let the business run as long as they want, and then hit you. Perhaps following a tipoff from a neighbour, when you win a planning permission on a house extension which he objected to. They just need to find some tiny accounting mistake (which they always can) and then they can open an enquiry.
I hate scaremongering on here (plenty of people do it, and aviation is so full of dark clouds already) but I think this is a real problem. In the case I am familiar with I think the tax inspector is a bit of a d1ckhead who is ahead of himself and is out to get anybody who earns more than he does (quite a common thing in today's Inland Revenue) but most targets will settle if hit hard enough (the standard practice) so justice doesn't come into it.
A limited partnership may be a better solution to the liability limitation requirement. The only other sure solution is for the proprietor(s) of the business to have no private-use access to the fleet, both contractually documented and actual.
At 40% tax on 20% of the purchase cost, that is an understatement of the year
Let's say the Revenue go after you 5 years after you started the business which involves renting out a £200k plane. The BIK tax bill is going to be £80k, less amount made good for the proprietor's actual private flying.
The above is my understanding - correct me anybody if I have it wrong.
You can take the BIK tax on the chin and just pay it, if you do something of the order of 400 hrs/year or more. A lot of people do that with very high-end company cars (say £200k Ferraris) because it's cheaper to pay the tax than to run the car privately. But for most people this doesn't make sense.
The situation is less bad with some old banger of a plane, of course.
The thing is that the Revenue can let the business run as long as they want, and then hit you. Perhaps following a tipoff from a neighbour, when you win a planning permission on a house extension which he objected to. They just need to find some tiny accounting mistake (which they always can) and then they can open an enquiry.
I hate scaremongering on here (plenty of people do it, and aviation is so full of dark clouds already) but I think this is a real problem. In the case I am familiar with I think the tax inspector is a bit of a d1ckhead who is ahead of himself and is out to get anybody who earns more than he does (quite a common thing in today's Inland Revenue) but most targets will settle if hit hard enough (the standard practice) so justice doesn't come into it.
A limited partnership may be a better solution to the liability limitation requirement. The only other sure solution is for the proprietor(s) of the business to have no private-use access to the fleet, both contractually documented and actual.
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Thanks for the replies people. I'm under no illusions as to how complicated the whole company thing is likely to be, and is something I realise requires much homework.
I do have a friend who is a chartered accountant, but that said she knows nothing about aviation. So whilst she is I'm sure quite capable of doing returns etc I think I shall be keeping a look out for someone who knows the field in order to get an idea of procedures and pitfalls...
I do have a friend who is a chartered accountant, but that said she knows nothing about aviation. So whilst she is I'm sure quite capable of doing returns etc I think I shall be keeping a look out for someone who knows the field in order to get an idea of procedures and pitfalls...
