Aiglon

Understood; so let's look at the alternative to a straight syndicate: somebody owns the plane (a LLP needs just 2 members and one of them can have a very small shareholding) and rents it out to the rest of the people. An overall surplus is then feasible - indeed, desirable because one has to provide for the engine/prop fund and since the overhaul cost in X years cannot be determined precisely, a surplus is desirable.

The renters could argue that they are supporting the owners but in return for that they should be getting access to a decent well maintained plane, not the usual self fly hire junk.

Admittedly this is not the normal syndicate where one pays £X/month by a standing order...

Ludwig

I am not a lawyer but have spoken to many, and the consensus appears to be that everybody knows the purpose of a ltd co. IS to limit liability, has been so for a century or three, so if somebody sets one up and then incurs a liability, you can't say to him afterwards "sorry mate, you set this co. up to limit your liability and that's not fair".

The corporate veil can be lifted in cases of fraud and other scenarios e.g. a Director making a personal warranty of some sort, but not if a liability arises through an accident.

Moreover if the aircraft has been rented out to the pilot in question, in a clearly businesslike manner...

Overclock,

Do you have a reference to the AOPA/Revenue agreement? I am a member and can contact them but anything you know...

I'm not sure about that:

SE21004 - Benefits and fair bargains says:

In the case of an aircraft owned by a company whose sole business is the hiring out of aircraft, it's difficult to see how rental of the aircraft to everyone (employee/director or not) on the same basis could be seen as anything other than a 'fair bargain'.

Where the aircraft is owned by a business that does not rent out the aircraft, the case is weaker, but I think it can still be made, that paying the market rate turns a 'benefit' into a 'fair bargain'.

IO540, I do not agree that it can be assumed that the protection of limited liability cannot be removed, especaily when dealing with taxation issues, so I don't see why it should not also apply elsewhere. There are in taxation, a number of times in which one has to suspend reality and deal as if with fiscal fictions.

I am happy to write a sumbission to the Inland Revenue to seek some clarity on this matter should enough people think it would be useful, but I think one needs to be prepared for a less than favourable response as it is difficult to see why they would want to look particularly carefully at the options until there is a particular tax issue at stake. Indeed, it migt be that by doing so we alert the IR to the potential scope of tax charges they could levy!

The best way of getting clarity would be for someone who owns and aircraft in a company to put their head above the parapet, get an a tax bill and appeal directly to the special commissions, with the expectaion of ending up before their Lordships as atax case. These things are often taken, by both sides, to obtain clarioty, and in many cases are funded by a number of interested parties. At least one capital gains tax cases was taken over a few pennies just to get clarity on what order certain releifs were calculated.

Perhaps one of the magazines would like to get involved (Flyer /Pilot where are you?)

bookworm

The very significant link you post suggests that if XYZ LTD owns a plane as its primary asset/business ("aircraft rental"), rents it at £100/hr to any of a number of unrelated individuals or companies, and also rents it at £100/hr to Joe Bloggs who also happens to be a Director of XYZ, there is no BIK issue for Joe Bloggs.

I also think there is something else everyone here is missing: how many directors of huge PLCs are being taxed for 20% of MV of their £20M corporate jet, not to mention every other asset which the Director could conceivably make use of! There must be an additional defence which is being overlooked.

Ludwig

I agree entirely that a ltd co does not provide reliable protection in taxation issues, because the Revenue has the power to set aside any arrangement unless it has a commercial purpose. But this is entirely different.

Case 1: Company XYZ LTD, whose Director is Joe Bloggs, rents the plane to Fred Smith who crashes it into a parked 747 causing £50M of damage. The insurance was £10M, leaving a £40M liability to fall onto XYZ LTD which as a result will go into liquidation.

Case 2: as above, he crashes it into a £500k house and it turns out that his PPL was forged or he had a long standing heart condition (the latter is easy to do because the AME doesn't have access to your GP's medical file); HOWEVER Joe Bloggs did discharge his responsibility as a Director by checking the pilot's logbook, license and medical. But the insurance company doesn't pay out.

Can you describe the legal argument needed to lift the corporate veil in the above situations so that Joe Bloggs can be made personally bankrupt? I would love to see some case law also.

An insurance underwriter once explained to me that a Director has an unavoidable residual liability in Case 1 because somebody could argue that since the aircraft clearly CAN be crashed into a 747 (etc) it should have been insured for that. (With a motor vehicle this line would fail because the Road Traffic Act basic cover is unlimited.)

IO540

Martin Robinson's e-mail in full reads:-

"Thank you for your email....several years ago we took on a firm of accountants to liase with the IR about this issue as we were concerned that aircraft that are owned by groups which are limited companies that the directors would end up with a tax problem. 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. However the situation is different for the directors of a company which owns
an aircraft which is for the sole use of one of the directors. The IR see this in the same way as a company flat,boat or car and under schedule D or E a benefit in kind situation arises.....This as I understand it is the current situation...."

Suggest you contact AOPA direct for more details.

I think some of the arguments about paying a fair hire rate for the asset, whilst sounding perfect reasonable, ignore the underlying motive of the tax legislation, which basically provides that if an asset is "put at the disposal" of the employee, it is effectively his (or hers), whether or not the employee actually uses it. Only if there are occasions when the asset can't possibly be used by the employee might it, in the IR's view, it be argued that the 20% charge should be reduced, and then the IR tend to take the position that if, say, the asset is clearly used independently of the employee for 20 days a year, it's available for the other 345 days.

In the case of plcs it's easier to demonstrate that an asset is not put "at the disposal" of a particular employee by requiring prior authorisation for the asset's use. In the case of a private company, these arrangements are easy to look through, because if the director wanted to use the asset at a particular time, who in practice is going to stop him?

As to "making good" the benefit, the relevant setion (s. 156(1) ICTA) provides "...the employee is taxed on ...the cost of the benefit less so much...is made good by the employee..." Later on in the section "cost" is defined as the 20% plus the running costs, so you always have as the starting point the 20% (or at best reduced by some miserly proportion when the employee couldn't possibly use the asset) from which you deduct the "making good".

The main problem as I see it is that times have changes, 20% might well have been a reasonable approximation to depreciation and financing costs in the late '70s or early '80s. It is now penal, and where the primary motive for owning the asset is a business one, there should be a fairer basis for taxation of the benefit.

IO540 No I canot describe the leagl arguement for lifting the veil of incorporation as I have never come across it, I was just wondering if anyone had and whether the fact that one part of the law could look through, necessarily meant onother could too.


The more one considers this the greater the potential tax charge could appear in the wrong circumstances. If you have a low use aircraft where the company makes a "loss" because the hourly charges do not fully cover all the outgoings, insurance hangarage etc etc, the charge wil be 20% of the value plus the current costs, less anything made good, it could be massive. If there are enough directors in say a largeish group I can see that the total combined bill could exceed the value of the aircraft.

A recent tax bulletin on the subject of sports clubs and mutuality might be interesting, but I do not necessarily think that lack of CT liability equates to no Schedule E charge. Even if say there were no UK resident directors a charge could be levied on participators in the widest sense.

Deep joy:(

Ludwig

Isn't the 20% BIK charge split over the number of Directors?

This all sounds risky and unclear , especially if different tax inspectors can interpret the rules differently !

obviously one "safe" option would be to take a dividend from the company to buy the aircraft and then operate it from tax-paid income-- but then you could'nt reclaim the VAT paid on initial purchase .... ??:confused: :confused:

The only "safe" option is to buy the plane yourself :O

The principal downside of that is no VAT reclaim so everything (including the plane itself) costs 17.5% more.

If you fly on business, you can charge your company a pretty stiff market rate. I've seen complex singles rented out at £200/hr (brakes off to brakes on) and they were relatively old. So any genuine business use would result in a decent cost recovery.

You can still rent it out then (insurance permitting). Unless you become a VAT reg'd individual you can't invoice VAT so you just uplift the price a bit...

But then you are exposing yourself to the already mentioned liability due to actions of other pilots. There is no easy way around that except (1) through a ltd co which in turn raises the BIK issue or (2) by ensuring you have no assets yourself!

IO540 ah you may well think that for it would be the logical and equitable thing, but this is tax! Where does it say that in either the act or even the revenue's notes?

Ludwig

which bit are you referring to? I merely said the only safe way is to avoid any complications and buy the whole thing out of your own pocket - like a fridge etc.