Claiming back VAT on aircraft purchase
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but they did expect to see copies of all the documentation for the purchase and a copy of a lease contract I had agreed with a flying school to burn hours on it
That should do for C&E but IME it won't do for the Revenue these days because for them the arrangement is principally to provide you with cheaper private flying, and isn't a "real business" or an "adventure in trade" as they like to call it. This enables them to wash their hands of their standard BIK guidance and they then go after you for BIK.
The beauty is if you are in a position get your own companies to invoice your helicopter company for use of the machine
You can do the same if you own the plane personally. Let's say you spent £20k a year flying, and 25% of that was demonstrably on business, you can claim £5k/year from your business as an expense. This is legal with HMRC, though not a lot of people know about it, thinking they can claim back only 40p or 60p or whatever per mile.... (Whether this is legal under the UK ANO in a G-reg is another matter which we did to death here a while ago).
That should do for C&E but IME it won't do for the Revenue these days because for them the arrangement is principally to provide you with cheaper private flying, and isn't a "real business" or an "adventure in trade" as they like to call it. This enables them to wash their hands of their standard BIK guidance and they then go after you for BIK.
The beauty is if you are in a position get your own companies to invoice your helicopter company for use of the machine
You can do the same if you own the plane personally. Let's say you spent £20k a year flying, and 25% of that was demonstrably on business, you can claim £5k/year from your business as an expense. This is legal with HMRC, though not a lot of people know about it, thinking they can claim back only 40p or 60p or whatever per mile.... (Whether this is legal under the UK ANO in a G-reg is another matter which we did to death here a while ago).
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To be fair, we did flog this particular R22 to death, I flew about 100 hours, the a/c did 500 hours in total in 1 year. It looked like a real business because it was trying to be!
With regard to the revenue we charged personal flying at the same rate as we charged the flying school, so there is no benefit in kind, and we always charged VAT. Rent in R22 land is pretty much set - you can up your price but people will just rent more hours from someone else - there's aways some new-to-the-business owner (like I was) who hasn't figured out that he's on to a loser from the start and agrees a rent that will never make a profit! The only freebies came in the form of "aircraft accessories" charged to the company.
The problem is, when you do it properly to avoid revenue/Customs risks, it's ultimately more expensive than renting, but you do get to keep it in your garden for convenience and not worry about a daunting brown envelope dropping through the door.
I reckon it ended up costing me at least £50/hr more to own the R22 than to rent 100 hrs, which is a staggering amount considering it flew 500 hrs in the year. Most of that came from depreciation at point of sale of the a/c after a year: if I'd achieved 5k more on the sale price, we'd have been break even. Sale price is critical.
My view now is to decide an amount I will spend per year if I want to rent, and a bigger amount if I want to own, based on some leaseback to keep HMRC happy but not to an extent where it compromises my enjoyment of the a/c.
Trying to own and make a profit just messes up the fun of ownership. Once you come to terms with the fact that ownership is probably going to cost you more than renting (particularly rotary), you can set aside your money, forget about the budget & enjoy it.
BW
With regard to the revenue we charged personal flying at the same rate as we charged the flying school, so there is no benefit in kind, and we always charged VAT. Rent in R22 land is pretty much set - you can up your price but people will just rent more hours from someone else - there's aways some new-to-the-business owner (like I was) who hasn't figured out that he's on to a loser from the start and agrees a rent that will never make a profit! The only freebies came in the form of "aircraft accessories" charged to the company.
The problem is, when you do it properly to avoid revenue/Customs risks, it's ultimately more expensive than renting, but you do get to keep it in your garden for convenience and not worry about a daunting brown envelope dropping through the door.
I reckon it ended up costing me at least £50/hr more to own the R22 than to rent 100 hrs, which is a staggering amount considering it flew 500 hrs in the year. Most of that came from depreciation at point of sale of the a/c after a year: if I'd achieved 5k more on the sale price, we'd have been break even. Sale price is critical.
My view now is to decide an amount I will spend per year if I want to rent, and a bigger amount if I want to own, based on some leaseback to keep HMRC happy but not to an extent where it compromises my enjoyment of the a/c.
Trying to own and make a profit just messes up the fun of ownership. Once you come to terms with the fact that ownership is probably going to cost you more than renting (particularly rotary), you can set aside your money, forget about the budget & enjoy it.
BW
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we charged personal flying at the same rate as we charged the flying school, so there is no benefit in kind
That is a standard defence but IME the Revenue push it aside on the assertion that the business is not set up to make money.
To top the insult, they can and will charge you BIK (which arises purely as a result of the plane being corporate owned) even though they have decided the business was not a real business. This is a real perversion of justice but is valid.
In your case, you did indeed flog the heli to death and that is probably the only situation in which one will have an easy ride with the b*stards in the Revenue. The same applies to fixed wing; the thing has to be practically wrecked to make a profitable business, and this is why most self fly hire fleets are in such a state.
To do it with something decent is going to be much harder, IMV. The kind of "quality pilots" that you need to fly something nice (and complex) are few and far between.
Renting an IFR tourer is harder still because the most obvious renter candidates (airline pilots) don't want to fly IFR; they are invariably sick to death of IFR and want to fly rag and tube types. The vast majority of PPLs would need a dozen check flights just to cover the basics, and then you are still left with what the hell happens if he gets stuck in IMC - who will recover the plane from some dump 300nm away after he's taken a cheap flight back home. There is visible competition from the various Cirrus groups that sell blocks of hours and these will mop up people who have any cash.
Incidentally, I came across one more requirement: the plane has to be parked at a public airfield so renters can just turn up (having booked it via a booking site) and jump in. I would be wary about keeping a heli in one's garden and running it as a rental business, unless people can literally just drop in and jump in.
All these things, and much more, were banged around over a 2-year enquiry and the Revenue were not going to go away unless they picked up a 5-digit cheque so they could move on and hit their next target.
That is a standard defence but IME the Revenue push it aside on the assertion that the business is not set up to make money.
To top the insult, they can and will charge you BIK (which arises purely as a result of the plane being corporate owned) even though they have decided the business was not a real business. This is a real perversion of justice but is valid.
In your case, you did indeed flog the heli to death and that is probably the only situation in which one will have an easy ride with the b*stards in the Revenue. The same applies to fixed wing; the thing has to be practically wrecked to make a profitable business, and this is why most self fly hire fleets are in such a state.
To do it with something decent is going to be much harder, IMV. The kind of "quality pilots" that you need to fly something nice (and complex) are few and far between.
Renting an IFR tourer is harder still because the most obvious renter candidates (airline pilots) don't want to fly IFR; they are invariably sick to death of IFR and want to fly rag and tube types. The vast majority of PPLs would need a dozen check flights just to cover the basics, and then you are still left with what the hell happens if he gets stuck in IMC - who will recover the plane from some dump 300nm away after he's taken a cheap flight back home. There is visible competition from the various Cirrus groups that sell blocks of hours and these will mop up people who have any cash.
Incidentally, I came across one more requirement: the plane has to be parked at a public airfield so renters can just turn up (having booked it via a booking site) and jump in. I would be wary about keeping a heli in one's garden and running it as a rental business, unless people can literally just drop in and jump in.
All these things, and much more, were banged around over a 2-year enquiry and the Revenue were not going to go away unless they picked up a 5-digit cheque so they could move on and hit their next target.
niknak
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Don't forget that although you can voluntarly register for VAT at any time, to reclaim it, the company has to have an annual turnover of £65K or more and there are specific restrictions as what you can reclaim relief on.
Having formed the company, then purchased the aircraft you can then reclaim the VAT as long as you can prove that it is a legitimate part of the company's operations, any hint of "personal use" will preclude any reclaim.
You can only do that within 12 months of the purchase of the aircraft and within the same tax year that your turnover exceeds £65K.
Thereafter, your company has to meet the turnover requirements to reclaim the VAT on any eligible expense.
Take advice from a suitably qualified source, balance the costs of employing a qualified accountant and what you will actually get back.
Get it right and you'll be OK, make a "mistake" and the Revenue will be on your doorstep.
Having formed the company, then purchased the aircraft you can then reclaim the VAT as long as you can prove that it is a legitimate part of the company's operations, any hint of "personal use" will preclude any reclaim.
You can only do that within 12 months of the purchase of the aircraft and within the same tax year that your turnover exceeds £65K.
Thereafter, your company has to meet the turnover requirements to reclaim the VAT on any eligible expense.
Take advice from a suitably qualified source, balance the costs of employing a qualified accountant and what you will actually get back.
Get it right and you'll be OK, make a "mistake" and the Revenue will be on your doorstep.
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I think there are several errors in the above, e.g. about having to have turnover above 65k to reclaim VAT...............
The good advice would be to see a good accountant, but make sure he knows about this kind of thing and is not just a street corner type that does PAYE for old ladies.
The good advice would be to see a good accountant, but make sure he knows about this kind of thing and is not just a street corner type that does PAYE for old ladies.
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Beware of the benefit in kind rules /depreciation
we imported a 1.4 millon dollar helicopter the vat was reclaimed no problem but the revenue wanted nearly 100,000 per year benefit in kind as they said it was available to me 24 hrs per day and 7 days per week also the tax write off is only 6% as it is classed as a long life asset
they also wanted to go back 3 years and the investigation lasted 3 years
i managed to make a suitable aggreement with them but it was 3 years of worry and £1000,s in accountant /legal costs
i also owned personally a small heli but that made little difference they said they would allow the hours i flew in my private heli to be deducted from the 24 hour 7 days per week BIK
we imported a 1.4 millon dollar helicopter the vat was reclaimed no problem but the revenue wanted nearly 100,000 per year benefit in kind as they said it was available to me 24 hrs per day and 7 days per week also the tax write off is only 6% as it is classed as a long life asset
they also wanted to go back 3 years and the investigation lasted 3 years
i managed to make a suitable aggreement with them but it was 3 years of worry and £1000,s in accountant /legal costs
i also owned personally a small heli but that made little difference they said they would allow the hours i flew in my private heli to be deducted from the 24 hour 7 days per week BIK
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Indeed.
Incidentally, long life assets are those with depreciation of 5% or less, IIRC. This is a catch 22 though, because if you argue the asset is short life (and want to write it down say 25% a year) then you screw your business plan because the aircraft will need replacing so much sooner. If you argue the aircraft will last a long time, then you can't support 25% capital allowances, and this is relevant if the whole project is within a larger corporate structure.
AFAIK the only reasonably safe way to avoid BIK is to
a) for the limited company proprietor(s) to not be able to fly at all (i.e. not have a PPL, etc), or
b) everybody who flies to be a shareholder
The above came out of the investigation which I am aware of.
One obvious question is how come the Revenue does not bust every employee of a company that owns a jet, for BIK? Answer: the employee has no access, and this could even be in his contract. The problem is that a Director can in principle get access because of his authority (to boss people around) so his access needs to be explicitly controlled. This came up a couple of years ago and the major accountancy firms sent circulars to their clients at the time on how to handle this... a controlled-access booking method (e.g. a website) was the 1st line of defence, and a ban in the contract of employment was next, IIRC.
Unfortunately, the incentive for corporate aircraft ownership is going to increase in the future, because the bottom has fallen out of the used aircraft market. A £300k tourer bought 5 years ago might fetch £120k now if in mint condition; less if composite (e.g. a Cirrus). So the real depreciation is huge; getting more like flash cars. It's obvious worth trying to use this loss somewhere, but it's very hard to reconcile this with the case where there is any private usage by the company officers.
Incidentally, long life assets are those with depreciation of 5% or less, IIRC. This is a catch 22 though, because if you argue the asset is short life (and want to write it down say 25% a year) then you screw your business plan because the aircraft will need replacing so much sooner. If you argue the aircraft will last a long time, then you can't support 25% capital allowances, and this is relevant if the whole project is within a larger corporate structure.
AFAIK the only reasonably safe way to avoid BIK is to
a) for the limited company proprietor(s) to not be able to fly at all (i.e. not have a PPL, etc), or
b) everybody who flies to be a shareholder
The above came out of the investigation which I am aware of.
One obvious question is how come the Revenue does not bust every employee of a company that owns a jet, for BIK? Answer: the employee has no access, and this could even be in his contract. The problem is that a Director can in principle get access because of his authority (to boss people around) so his access needs to be explicitly controlled. This came up a couple of years ago and the major accountancy firms sent circulars to their clients at the time on how to handle this... a controlled-access booking method (e.g. a website) was the 1st line of defence, and a ban in the contract of employment was next, IIRC.
Unfortunately, the incentive for corporate aircraft ownership is going to increase in the future, because the bottom has fallen out of the used aircraft market. A £300k tourer bought 5 years ago might fetch £120k now if in mint condition; less if composite (e.g. a Cirrus). So the real depreciation is huge; getting more like flash cars. It's obvious worth trying to use this loss somewhere, but it's very hard to reconcile this with the case where there is any private usage by the company officers.
