IO540,

That depends upon the precise circumstances - you need to read my post in full. If the aircraft (in this case) is made available to the director for business purposes ONLY - ie he/she is not allowed to use it for private purposes - then there would be no benefit in the first instance. However, if it was available for personal use, there would be a potential benefit. It is in this case that logic tells you that you apportion the costs between the business and non-business use and simply tax the non-business benefit. However, logic does not always feature too highly in tax legislation ;) and this is the point I was making. As I said in my last post (from which you selectively quoted), an apportionment can only be made between use as a benefit and "other matters". The Revenue's view (and I stress it is just that, their view) is that "other matters" does not encompass business use by the director. So, as I also said, the director would be liable to a full benefit charge but would be able to claim a separate deduction for the business use. In practice, individual Inspectors may simply charge the net amount but that is not the strict position.

In your example, assuming the asset was available (though not used) for private use, the strict position is a benefit charge on the full amount and a business expense claim for the business use. Cumbersome? - Yes. Messy? - Yes. Sensible? - No but strictly correct.

What sources did you research?

What is the authority of this statement? I would like to believe that it is correct, it certainly would be sensible but it is not supported by the relevant tax legislation.

Ditto. The legislation clearly requires reimbursement of the full benefit which includes the 20% of MV.

Aiglon

Aiglon,

The "research" was done by my accountant, a fair size firm with mostly corporate clients. Not exhaustive, of course.

The reality is that Directors are NOT getting taxed on the BIK just because they could in theory jump into the company plane for a private trip (having, as a Director, the authority to arrange it). Recently the Revenue has attempted to change that, and last I heard was that this is still ongoing. It would cause massive problems if they did that - imagine every Director of some big co. getting taxed on the BIK on their £20M exec jet. Even if their written rules were "no private use" a majority shareholder can just set them aside.

The authority for what I said about reimbursing private use came straight out of a Revenue (HMSO) publication which I read with the accountant, but I don't have it here. It was pretty clear (in itself).

The legislation clearly requires reimbursement of the full benefit which includes the 20% of MV

Can you give me the CCTA reference for this, and I will look it up? In your opinion, does having other pilots also renting at the same market rate (who are unconnected to the company operating the aircraft) help?

The problem with all this is that a) most people will not discuss this publicly and indeed they probably shouldn't, and b) when one talks to owner pilots one finds huge variations between local Revenue practice.

IO540,

My comments have all been about the strict legal position, indeed, I did acknowledge that some Inspectors my simply charge the net benefit.

I think we need to be alitlle careful here. The fact that many GA aircraft owned through corporate structures are not leading to benefit charges is (in my opinion) more likely to be down to the fact that these issues are simply not being picked up by Inspectors rather than a positive stance taken by the Revenue. In my experience, it is dangerous to assume that because an adopted treatment is not challenged, that means it has been accepted by the Inspector.

Not immediately sure what CCTA stands for but the relevant references to the Income Tax(Earnings and Pensions) Act 2003 are as follows:

Part 3 deal, inter alia, with Benefits, Chapter 2 being the basic benefits code and Chapters 3 - 9 dealing with specific benefits (cars, loans etc). Chapter 10 deals with "Residual Liability to Charge" and it is under this chapter that aircraft are caught.

S.205 (2)(a), in conjunction with s.205 (3) answer your specific question.

I am well used to researching tax legislation, I do it for a living, being a tax partner at a Big-4 firm. This area is not my specialism (as I acknowledged in my first post) but I have talked to a lot of people for whom it is, as well as reading the legislation (always the starting point) and IR manuals.

Aiglon

aiglon,

CCTA stands for company and corporation taxes act, I think. Thank you for the other reference, I will check it out.

IO540

That explains why I haven't heard of it, it is actually called "Income and Corporation Taxes Act" (ICTA) 1988. As you will see from my last post, all the relevant stuff has been moved from ICTA to ITEPA.

Happy reading .

Aiglon

I know of a guy who got clipped for in excess of 25k in BIK for his ownership of a four seater and that was approximately 10 years ago.

The inspector concerned assessed the hours he had used his company aircraft for business purposes. The hours the aircraft had been available to him; ie all daylight hours the aircraft wasn't being used for business, were calculated, costed using a hire rate of a similar aircraft from the local flying club and BIK charged on that amount. Unsurprisingly he sold the aeroplane to pay the tax bill. :mad: :mad:

LowNSlow

In the case you describe, did the company which owned the plane ever invoice the man for his private flights? If so, at what rate? If not at all, the said outcome would be expected.

light aircraft and Inland Revenue
 

I entirely agree with Aiglon's analysis of the rules.

The problem is one that often arises in tax, the government of the day passes legislation to deal with a particular "abuse", some time later when things have moved on a bright spark in the IR sees an opportunity to levy tax in entirely unforeseen circumstances.

In this instance, the legislation was introduced in 1976 when inflation was 20%, interest rates 15% and directors of private companies hit on the wheeze of getting the company to buy assets (all sorts of things, furniture, suits, lawnmowers etc) for their personal use on which they paid very litle tax. The intention was to stop this, and this legislation did precisely that.

However, aircraft are different, and times have changed. Inflation is 2%, interest rates 5% (say). But the IR have decided to use the legislation in its full force to tax company owned aircraft.

The rules can be penal, particularly where there is a genuine business reason for owning the aircraft, and little private use. In one case I am aware of the aircraft spends 85% of its hours on business use, but the IR are insisting the principal shareholder director pays tax on 20% of the aircraft's value each year.

If this problem is sufficiently big to make a significant difference to the way businesses operate, it may be possible to persuade the govenrment to amend the tax legislation. It is necessary to put together a compelling case and to lobby effectively, ideally via one or more aviation friendly MPs.

Anyone up for this? If so please contact me

overclock

As far as I can see, Inland Revenue practive varies hugely around the country.

Before I placed mine in a ltd co I discussed it in detail with my accountant in whose experience the Revenue rarely did the 20% BIK thing.

I think a lot depends on whether the Director (who as a result of his authority has access to the company asset) reimburses the Company for his private use, and does so on the same terms on which other unrelated users get it. I discussed this in detail with the VAT inspector and he told me that the reimbursement is very important to C&E.

Overclock,

You say the aircraft is used for business - is that for the business of the company that owns it? Where the aircraft is "privately" owned through a company but one of the group members uses it for his (day job) business use, that is irrelevant in the benefit calculation.

My point is not really to do with how "businesses" operate but the fact that "private" owners who choose to operate through a limited company are hit by the benefit rules in exactly the same way as directors/employees of "real" companies who have use of a company asset.


IO540,

Trust me, their attitude and approach has changed - I see it at work and in their revised manual.

By the way, how was your Christmas reading??

Aiglon

Not very encouraging - emigration is definitely the answer :O

IO540 I don't think the chap concerned had any formal system for paying the company for private use. Oooops.

LowNSlow

Well in that case he was asking for getting done big-time. The only more provocative thing is to keep a "recehorse on the firm" :O

On the general topic, if having a plane in a ltd co. in any circumstances becomes subject to the 20% BIK tax, owner pilots will have to make some potentially hard choices:

If you always fly the plane yourself, then liability is not an issue (because the pilot is jointly liable with the owner)

If others fly it (renting or syndicate) then you are relying entirely on the insurance company (who in aviation are not renowned for decency) for paying out, otherwise you risk personal bankrupcy. A limited liability partnership could be a solution here, especially as there is no minimum shareholding to qualify (so low-time other pilots would just get a very small share). My accountant has already set up quite a few of those.

Regarding VAT recovery, this is highly desirable but doesn't really depend on a ltd co; you can be an individual or a partnership just the same. But a ltd. co gives better separation of the affairs.

Some businessmen choose to take the 20% BIK hit on the chin, especially in the case of short life assets like expensive business suits. But this would be a hugely expensive way to run a good quality aircraft (suitable for business travel) as most of them have a MV of well over £100k and often several times that.

LLPs
 

IO540,

As I have suggested before, I am not convinced that a LLP will work for a private group since the LLP legislation requires that it be established for the purposes of "carrying on a lawful business with a view to profit". Clearly, a private group would not satisfy that requirement.

Aiglon

aiglon,

Why not? It would be lawful, and it could be run with a view to making a profit.

Whether it actually makes a profit nobody can tell - lots of real LLPs never make a profit anyway.

It could be argued that any present-day syndicate which is just a partnership is exposing its members to this risk, but nobody seems to worry about it too much. Probably because 3rd party damage is very rare in GA.

I have done a fair bit of research into the subject and engaged professional advisors. The thing that struck me going through the whole process is how subjectively the rules can be interpreted. I have now ended up with a corporate structure I'm comfortable with to limit my personal liability and that I feel I can justify to the taxman, but still I'm not 100% sure whether in 6yrs time a new tax inspector won't interpret the rules differently, landing me with a significant tax liability.

I've engaged lawyers, accountants and tax professionals, but none seem to be too experienced in the aviation area (most look at these structures for boat ownership, which isn't directly equivalent in certain circumstances). My question is, does anyone know any accountants/tax advisors who specialise in aircraft ownership structures? (I know they exist for the big boys but still haven't found any for GA business). Please PM me of anyone has direct experience.

Welcome to the tax system. Anyone who's come across IR35, for example, will recognise every word of that (except the one spelled "comfortable").

IO540,

I think it would be tricky for a purely private, group ownership 'syndicate' to argue that they were setting up a LLP (or anything else) "with a view to profit". How would they intend making that profit; bay charging themselves more than cost? OK, they could do that but it would be likely to lead to problems since they will be relying on the principle of 'mutual trading' to avoid tax. There are complications with regard to surpluses for mutuals.

Absolutely agree. Whether you actusally make a profit or not is not the point, though; what matters is intention. If there was a liability claim, I bet a good lawyer would have a go at the legal status if he/she could show there was never any real intention to even try and make a profit.

Aiglon

Aiglon, good point about a lawyer lifting the veil of incorporation. Are there any lawyers out there (FL?) who would care to comment on this; how robust is the limited liability afforded by a limited company if one sought to defeat or limited a third party claim to the value of the assets of the company, especaily as in many cases the only or main purpose of the company is to protect the "real" owners from such a claim. Would it help if one could demonstrate that the only or main purpose in having the company was for reasons other than limiting liability, for example creating a framwork in which the ownership of the underlying assets could be easily divided and transfered?

Isn't this issue of the most approraite legal structure for aircraft ownership perhasp something that AOPA should agree centrally with the IR? What thinkest thou?

Just a couple of additions to my previous post.

I understand from Martin Robinson at AOPA that some time ago AOPA agreed with the IR that putting an aircraft into a company, for the purpose of running a group owned aircraft,

"The IR in the end accepted that so long as the groups sole asset was the aircraft and that all the expenses went to the running of the aircraft that the directors of the limited company would not be liable for a benefit in kind tax."

This seems reasonable, although in the current climate may still be open to challenge.

In the case I cited (aircraft used 85% for the business purposes of the company) the assessment of the controlling shareholder director on 20% of the market value (and I ignore running costs here, but that's an issue in itself) the IR are strictly correct. Their position is fully in accordance with the legislation.

If the director concerned wishes to "make good" the benefit, it is not sufficient to pay a market rate for the use of the aircraft, he is required to pay an amount to the company equivalent to the benefit value calculated under the tax legislation.

I understand people have negotiated individual deals which may be much more favourable, but my position is that this isn't acceptable, people should know what the tax position will be, and the tax payable should be made to equate to the value of the benefit calculated on a basis that is fair and reasonable. We might argue what is fair and reasonable, but where the taxable benefit is far and away higher than what it would cost to hire an equivalent aircraft at arms length, it seems to me pretty unreasonable.

This is why I believe it's necessary to take this to a higher authority, if there is significant support.