Flying schools going tits up.
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bigfoot, the greatest advantage of dividends is actually up to the 40% threshold. Take minimum salary to ensure NI is credited whilst minimising your contributions and then take dividends above this, which no tax is actually paid on, up to the 40% threshold. The company of course has to pay corporation tax on the dividends as they are profit. This assumes the company is profitable enough to pay the dividends or that they are coming from reserves.
Above the 40% threshold the tax to pay is 32% (unless it's changed recently) and no NI on dividends from individual or company.
The total tax paid is generally the same whether salary or dividend route, the difference is whether the employee or employer pays it. IE PAYE (20%/40%) plus NI or PAYE (32%) and corporation tax.
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Above the 40% threshold the tax to pay is 32% (unless it's changed recently) and no NI on dividends from individual or company.
The total tax paid is generally the same whether salary or dividend route, the difference is whether the employee or employer pays it. IE PAYE (20%/40%) plus NI or PAYE (32%) and corporation tax.
BB
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MJ, I think your title of the thread is a little melodramatic and the reality of this is it effect very few people. I am guessing from your tone that there is some history there somewhere?
Most schools I know have the full timers on PAYE and the part timers can be either. Which makes sense to me.
Most schools I know have the full timers on PAYE and the part timers can be either. Which makes sense to me.
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The total tax paid is generally the same whether salary or dividend route, the difference is whether the employee or employer pays it
I am not a tax specialist but I don't think there is any income tax saving, in any scenario.
Most instructors I have known were SE and some got as little as £10/day retainer. But they were all thumbing through airline job ads the whole time anyway and if I was the employer I would obviously strongly disapprove of that, especially so openly before customers. The tolerable attitude is different between a PAYE person and a SE person.
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Not really I was on paye.
Some of the arseholes I came across running schools when i was an Instructor were shocking in the extreme. And the industry will be well rid of them and thier flying rafts.
You will be surprised how many it does affect the PAYE self employed can be quite regional. You could find that large areas of Britain suddenly loose a fair number of quite well known schools. And you know what these airports are like once there isn't a flying school on site the doors will be shut landing fees increased and another GA airport is gone.
Actually I just don't want PPL's to loose money when schools go tits up.
And the sitting all day for 10 quid is being looked at as well by the minimum wage unit. Cabair got done for that a couple of years ago. So sitting in the school unpaid answering the phone is going to be out the window as well.
Some of the arseholes I came across running schools when i was an Instructor were shocking in the extreme. And the industry will be well rid of them and thier flying rafts.
You will be surprised how many it does affect the PAYE self employed can be quite regional. You could find that large areas of Britain suddenly loose a fair number of quite well known schools. And you know what these airports are like once there isn't a flying school on site the doors will be shut landing fees increased and another GA airport is gone.
Actually I just don't want PPL's to loose money when schools go tits up.
And the sitting all day for 10 quid is being looked at as well by the minimum wage unit. Cabair got done for that a couple of years ago. So sitting in the school unpaid answering the phone is going to be out the window as well.
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MJ, I think your title of the thread is a little melodramatic and the reality of this is it effect very few people. I am guessing from your tone that there is some history there somewhere?
Most schools I know have the full timers on PAYE and the part timers can be either. Which makes sense to me.
Most schools I know have the full timers on PAYE and the part timers can be either. Which makes sense to me.
If this helps clubs sort their lives out and pay a living wage to Instrcutors, then this should hopefully benefit all in the long run. Though there will be casualties along the way.
Whether these casualties are missed, is a different matter.
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With the obvious disclaimer that I have never run a flying school (instead spent 30 years in manufacturing) my guess is that a flying school is a damn hard business to run.
Unless you have a super catchment area, and an exclusivity deal with the airport owner (or you ARE the airport owner) preventing a competing school setting up. Then you could have a nice business, capable of funding a good level of customer service, with dedicated career (PAYE) instructors, etc.
Most schools work in a cut-throat competition environment where there is always somebody along the road, with a more decrepit fleet and paying an even lower rate to instructors, working out of an old leaking hut, and working himself for next to nothing, able to compete pretty well because most punters are clue-less - just like I was when I started on this long paper-collecting road.
There was a hope a few years ago that schools would set up with modern fleets (basically meaning DA40-TDi) which would pick up most of the business and this would "clean up" the cowboys. This might have eventually happened if Thielert had not delivered such a crap product and turned the financial cards totally against those bold enough to try this otherwise very smart business formula.
If I was running a school I would keep my fixed costs to the absolute minimum and this means almost nobody on PAYE - except maybe the receptionist. Fixed costs is THE business killer. Capital expenditure is the other one (it saps cash without reducing your profit, and "cash is king" in all business regardless of creative accounting) but you can control that, and nowadays most office equipment is dirt cheap.
The trick, I guess, is finding half decent instructors who are willing to work on a very loose package. But then recruitment has always been the hard bit
Unless you have a super catchment area, and an exclusivity deal with the airport owner (or you ARE the airport owner) preventing a competing school setting up. Then you could have a nice business, capable of funding a good level of customer service, with dedicated career (PAYE) instructors, etc.
Most schools work in a cut-throat competition environment where there is always somebody along the road, with a more decrepit fleet and paying an even lower rate to instructors, working out of an old leaking hut, and working himself for next to nothing, able to compete pretty well because most punters are clue-less - just like I was when I started on this long paper-collecting road.
There was a hope a few years ago that schools would set up with modern fleets (basically meaning DA40-TDi) which would pick up most of the business and this would "clean up" the cowboys. This might have eventually happened if Thielert had not delivered such a crap product and turned the financial cards totally against those bold enough to try this otherwise very smart business formula.
If I was running a school I would keep my fixed costs to the absolute minimum and this means almost nobody on PAYE - except maybe the receptionist. Fixed costs is THE business killer. Capital expenditure is the other one (it saps cash without reducing your profit, and "cash is king" in all business regardless of creative accounting) but you can control that, and nowadays most office equipment is dirt cheap.
The trick, I guess, is finding half decent instructors who are willing to work on a very loose package. But then recruitment has always been the hard bit
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IO540
You are absolutely right, it is a very very tough business. I doubt there are many Flying Schools that make a reasonable profit, unless they provide commercial training. This will prove to be even more the case during the current recession.
Providing continuity of work (whether the FIs are employed or self employed) is inevitably equal tough. I can think of few business more effected by the weather.
I feel it is an industry that will ultimately benefit by some deregulation. Keen "amateurs" who have a love for flying and, I would add, often considerably more expereince than some instructors, who are willing to do a FIs course and committ one or two days a week maybe the best route for the industry to take.
You are absolutely right, it is a very very tough business. I doubt there are many Flying Schools that make a reasonable profit, unless they provide commercial training. This will prove to be even more the case during the current recession.
Providing continuity of work (whether the FIs are employed or self employed) is inevitably equal tough. I can think of few business more effected by the weather.
I feel it is an industry that will ultimately benefit by some deregulation. Keen "amateurs" who have a love for flying and, I would add, often considerably more expereince than some instructors, who are willing to do a FIs course and committ one or two days a week maybe the best route for the industry to take.
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Clarification of initial post
This is a re-post from the thread started on the flying instructor forum, with the following additional clarification - HMRC are taking a case against Sherburn to the Special Commissioners in London. A decision will be made as to whether instructors at Sherburn are employed or self employed. The outcome will create a precedent which can be applied then to other clubs/schools and any underpaid tax and NI backdated a number of years. My original post:
Why are "self employed" instructors not concerned about this?? If HMRC win against Sherburn it will create a dangerous precedent. In the current economic climate, I can't see Flying Schools being able to pass on the costs of Employers NI to customers without there being a reduction in overall demand for flying training.
Therefore if overall income to Schools is unlikely to grow a newly defined "employed" instructor can't earn any more. In fact they might earn 12% less to cover the School having to pay Employers NI. So the same pot of earnings we get now is redefined to cover normal pay, holiday pay, sickness pay etc etc.
Perhaps more importantly - I like to manage my own tax affairs. I prefer to deduct my business associated expenses prior to paying tax, and do not want to be in a situation where HMRC can deduct PAYE/NI at source on gross pay and I have to fight to get it back retrospectively.
If HMRC win and other schools are challenged, I'm not sure I can afford to instruct as I currently do because I'm sure it will mean I'm paid less and taxed more. Perhaps I shouldn't worry then, because if this forces good Clubs like Sherburn to decide they can't afford to run a school it will all be outside my control in any case.
Why are "self employed" instructors not concerned about this?? If HMRC win against Sherburn it will create a dangerous precedent. In the current economic climate, I can't see Flying Schools being able to pass on the costs of Employers NI to customers without there being a reduction in overall demand for flying training.
Therefore if overall income to Schools is unlikely to grow a newly defined "employed" instructor can't earn any more. In fact they might earn 12% less to cover the School having to pay Employers NI. So the same pot of earnings we get now is redefined to cover normal pay, holiday pay, sickness pay etc etc.
Perhaps more importantly - I like to manage my own tax affairs. I prefer to deduct my business associated expenses prior to paying tax, and do not want to be in a situation where HMRC can deduct PAYE/NI at source on gross pay and I have to fight to get it back retrospectively.
If HMRC win and other schools are challenged, I'm not sure I can afford to instruct as I currently do because I'm sure it will mean I'm paid less and taxed more. Perhaps I shouldn't worry then, because if this forces good Clubs like Sherburn to decide they can't afford to run a school it will all be outside my control in any case.
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You are quite right in what you say, if this action goes against Sherburn it could have major repercussions for other flying schools.
If HMRC win against Sherburn it will create a dangerous precedent.
You are both wrong I suspect. It will do no such thing. Such cases are inevitably decided on the facts. There will be no point of law at issue and the circumstances of each school will be different.
If you are self employed you MUST manage your affairs. It is a matter of fact whether or not you are self employed. The test is not unreasonable.
If HMRC win against Sherburn it will create a dangerous precedent.
You are both wrong I suspect. It will do no such thing. Such cases are inevitably decided on the facts. There will be no point of law at issue and the circumstances of each school will be different.
Perhaps more importantly - I like to manage my own tax affairs. I prefer to deduct my business associated expenses prior to paying tax, and do not want to be in a situation where HMRC can deduct PAYE/NI at source on gross pay and I have to fight to get it back retrospectively.
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Unfair Competition
Although cheapskating, to reduce costs and the price of the product, is usually popular with consumers, it is unfair to businesses which operate ethically and within the law.
Cowboy club or commercial FTO's should not be supported by students.
Typically, any business which is dubious in terms of employment will, also, be cutting corners in other areas of its activities- insurance and maintenance being obvious examples in FTO's. Your cheap(er) lessons may end up being an expensive or terminal experience.
The (low) pay of instructors issue is much older than PPruNe although it seems to be contradicted by that other old chestnut- the shortage of instructors.
The unavoidable problem is that day-to-day demand for instruction in the UK is extremely variable and highly unpredictable so an annual 'decent living wage' isn't possible for most FTO's or instructors. Add to that, the well-known amateurism/enthusiast approach which typifies UK flight training and you have a perfect recipe for poverty affecting proprietors and employees.
The fact is that, because plenty of people love football, flying, riding, sailing etc., many are not involved in such businesses for rational economic reasons.
I've never met a poor scrap dealer or funeral director and I did meet a man who has made a lot of money from CAA/JAA PPL's (in Florida) but, sad to say, that's never likely to happen here unless........ landing fees are abolished, fuel duty is slashed, the climate changes etc. etc.
Cowboy club or commercial FTO's should not be supported by students.
Typically, any business which is dubious in terms of employment will, also, be cutting corners in other areas of its activities- insurance and maintenance being obvious examples in FTO's. Your cheap(er) lessons may end up being an expensive or terminal experience.
The (low) pay of instructors issue is much older than PPruNe although it seems to be contradicted by that other old chestnut- the shortage of instructors.
The unavoidable problem is that day-to-day demand for instruction in the UK is extremely variable and highly unpredictable so an annual 'decent living wage' isn't possible for most FTO's or instructors. Add to that, the well-known amateurism/enthusiast approach which typifies UK flight training and you have a perfect recipe for poverty affecting proprietors and employees.
The fact is that, because plenty of people love football, flying, riding, sailing etc., many are not involved in such businesses for rational economic reasons.
I've never met a poor scrap dealer or funeral director and I did meet a man who has made a lot of money from CAA/JAA PPL's (in Florida) but, sad to say, that's never likely to happen here unless........ landing fees are abolished, fuel duty is slashed, the climate changes etc. etc.
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Wrong, as i said before , i think we all know a self employed person must look after their own books!! The actual grey area is the dividing line between employed and self/employed.Ask any HMCR inspector and you will get a different answere everytime!! Hence case at the tribunal. And as i said, if the s... hits the fan, its belly up time for a lot of flying clubs.
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Wrong, as i said before , i think we all know a self employed person must look after their own books!! The actual grey area is the dividing line between employed and self/employed.Ask any HMCR inspector and you will get a different answere everytime!! Hence case at the tribunal. And as i said, if the s... hits the fan, its belly up time for a lot of flying clubs.
I think with the changes in the rules and the return of the PPL Instructor we will just see a shift away from the hours builders and move to more part timers and the old backbone of career Instructors.
What it will do to wages remains to be seen.
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You are confusing the issue. The dividing line is grey, but most examples fall well too one side or other of the line. If they dont, the business has been poorly advised.
In the vast majority of cases it is clear who will, and will not, succeed.
I dont know the details of this case. However, people go before the General and Special Commissioners for all sorts of reasons. Particularly as concerns the General Commissioners the case often has very little merit.
The Commissioners are often required "simply" to establish the facts. Once the facts are deduced the decision is self evident. On occasions (the more especially before the Specials) the key is a point of law.
Is this case on appeal from the Generals I wonder, or have the parties agreed it may be taken directly to the Specials?
As I said before, unless their is some new pivotal point of law, which I very much doubt, I would be surprised if this case establishes any precedent.
In the vast majority of cases it is clear who will, and will not, succeed.
I dont know the details of this case. However, people go before the General and Special Commissioners for all sorts of reasons. Particularly as concerns the General Commissioners the case often has very little merit.
The Commissioners are often required "simply" to establish the facts. Once the facts are deduced the decision is self evident. On occasions (the more especially before the Specials) the key is a point of law.
Is this case on appeal from the Generals I wonder, or have the parties agreed it may be taken directly to the Specials?
As I said before, unless their is some new pivotal point of law, which I very much doubt, I would be surprised if this case establishes any precedent.
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I agree with Fuji. The "self employed or not" thingy has been around for years and is well rehearsed. A newcomer to "business" may well be unaware but it is easy enough to find out with a bit of research on the internet.
Simply working truly freelance for more than one school and using wholly one's own equipment should be pretty good.
Of course working for more than one school is not something the schools will approve of, which then sets up a trap for the school employed the SE instructor.
Simply working truly freelance for more than one school and using wholly one's own equipment should be pretty good.
Of course working for more than one school is not something the schools will approve of, which then sets up a trap for the school employed the SE instructor.
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The "self emplyed thingy" has been around for years and is well rehearsed, mmmm , strange then that it still raises it's ugly head !!Especially when you consider that experienced business people are involved!
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Honda CBX
Especially when you consider that experienced business people are involved
Now that could definitely be a very large assumption. Experienced business people have just been appearing in front of Congress and our own Members of parliament. Some cricket loving business people are in hot water, other sober bank exec's are not having a great time.
Especially when you consider that experienced business people are involved
Now that could definitely be a very large assumption. Experienced business people have just been appearing in front of Congress and our own Members of parliament. Some cricket loving business people are in hot water, other sober bank exec's are not having a great time.
If this case encourages The Revenue to start snouting about, the only people to suffer will be:
1. Wannabee airliner drivers masquerading as FIs.
2. Potential students.
PPL schools will merely offer the opportunity for PPL (and/or 'fATPL')-holding FIs to do some instructing. NO PAY - just refund of petrol money and perhaps the cost of lunch.
No real issue for the PPL school - but not much fun for the kid trying to use flight instruction as a way to pay off the cost of his/her fATPL or to 'build hours' for that all-important (and utterly dull) 737 co-pilot job.
As ye sow........
1. Wannabee airliner drivers masquerading as FIs.
2. Potential students.
PPL schools will merely offer the opportunity for PPL (and/or 'fATPL')-holding FIs to do some instructing. NO PAY - just refund of petrol money and perhaps the cost of lunch.
No real issue for the PPL school - but not much fun for the kid trying to use flight instruction as a way to pay off the cost of his/her fATPL or to 'build hours' for that all-important (and utterly dull) 737 co-pilot job.
As ye sow........
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Come on guys, you arent being serious are you. All sorts of things continually raise their "ugly" heads even though the ground rules are pretty clear. People make the same mistakes time after time either because they cant be bothered to read the rules, havent got the time, receive poor advice, think they will get away with it etc. That has always been the way of things. It doesnt mean the rules are new and it doesnt mean the rules arent well rehearsed. As I said before, if you examine the vast majoity of these cases employers make the most basic of mistakes and shouldnt be surprised when their collars are felt. In fact it is more than likely that the Revenue will not pursue those cases where the employer has made a reasonable effort to stay the right side of the line.
I think Belowradar has it, so called experienced buisiness people can and do make the most elementary mistakes, and they are elementary mistakes not because the rules arent black and white, and not because traps have been set, but because they are too stupid or arrogant to avoid making the mistakes. Sorry, but that is the way it is.
I would be the first to accept their are areas of legislation that are complex, new and still in the process of the ground rules being established. It is all too easy for anyone to run into problems in some of these areas and understandable when they do - this is not one of them.
I think Belowradar has it, so called experienced buisiness people can and do make the most elementary mistakes, and they are elementary mistakes not because the rules arent black and white, and not because traps have been set, but because they are too stupid or arrogant to avoid making the mistakes. Sorry, but that is the way it is.
I would be the first to accept their are areas of legislation that are complex, new and still in the process of the ground rules being established. It is all too easy for anyone to run into problems in some of these areas and understandable when they do - this is not one of them.