Tax and being a contracted pilot
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Tax and being a contracted pilot
Hi there,
I have heard and read some sketchy information regarding being a self employed contracted pilot (managing your own tax returns), and having a second source of income.
Has anyone out there set up a company and paid themselves minimum wage while taking the rest as dividends? Is this possible or is there legislation preventing this?
Any information would be appreciated.
Kind regards,
Tolan
I have heard and read some sketchy information regarding being a self employed contracted pilot (managing your own tax returns), and having a second source of income.
Has anyone out there set up a company and paid themselves minimum wage while taking the rest as dividends? Is this possible or is there legislation preventing this?
Any information would be appreciated.
Kind regards,
Tolan
Join Date: Oct 2006
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Tolan,
I have been a self employed pilot contractor for a number of years.
My advice is; that if you are serious, get a good accountant from the outset. It will cost you some money, but it will be worth it in the long run, especially if you happen to be audited by the Inland Revenue. Get some good advice on structuring also.
There is well held case law regarding the treatment of income derived from ones own labour. In principle if the income from your business is soley derived from your own labour, then it can not be split. For example, if you are a pilot and you are the only employee in your business and the business income is soley derived from you going out flying and getting paid for it, then you can not split this income. i.e. you can not pay yourself the minimum wage and hide the rest of the income in the business. What you can do, however, is deduct all related expenses from this income. Expenses might include; Office (typically 10% of your housing costs; Rent, Interest, Housing tax, Electricity, Phone, Water etc), Vehicle, Flight bag, sunglasses, books, airfares etc. The effect is that your taxable income is greatly reduced and you pay less tax.
If, on the other hand, you owned a business that employed pilots (possibly including yourself), and they went out and flew and the business received income as a result, then this income can be freely split. The business could pay each employee the minimum wage and distribute the rest of the income as it sees fit.
Laws differ, of course, depending on where you are resident.
I have been a self employed pilot contractor for a number of years.
My advice is; that if you are serious, get a good accountant from the outset. It will cost you some money, but it will be worth it in the long run, especially if you happen to be audited by the Inland Revenue. Get some good advice on structuring also.
There is well held case law regarding the treatment of income derived from ones own labour. In principle if the income from your business is soley derived from your own labour, then it can not be split. For example, if you are a pilot and you are the only employee in your business and the business income is soley derived from you going out flying and getting paid for it, then you can not split this income. i.e. you can not pay yourself the minimum wage and hide the rest of the income in the business. What you can do, however, is deduct all related expenses from this income. Expenses might include; Office (typically 10% of your housing costs; Rent, Interest, Housing tax, Electricity, Phone, Water etc), Vehicle, Flight bag, sunglasses, books, airfares etc. The effect is that your taxable income is greatly reduced and you pay less tax.
If, on the other hand, you owned a business that employed pilots (possibly including yourself), and they went out and flew and the business received income as a result, then this income can be freely split. The business could pay each employee the minimum wage and distribute the rest of the income as it sees fit.
Laws differ, of course, depending on where you are resident.
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Always start here!
[URL="http://www.hmrc.gov.uk/selfemployed/index.shtml"]
If you are British, live and work in the UK or even if you work in another country, you are liable for tax in the country where you derive the majority of your income. Dividends in Uk and most of the EU are treated in exactly the same way as income if you are a self employed individual contractor.
If you live and work in the EU, then you need to get an accountant in that country to file your tax returns. As mentioned, almost anything connected with your job can be deducted as an expense, right down to the dry cleaning of your tie!
Wherever you live and work, expect to deduct between 25% to 35%% of your net income as tax due. There really is no legal way to avoid tax, unless you are very rich. Avoidance attracts harsh penalties, ask the likes of Boris Becker and Michael Schumacker, who both narrowly avoided jail terms.
[URL="http://www.hmrc.gov.uk/selfemployed/index.shtml"]
If you are British, live and work in the UK or even if you work in another country, you are liable for tax in the country where you derive the majority of your income. Dividends in Uk and most of the EU are treated in exactly the same way as income if you are a self employed individual contractor.
If you live and work in the EU, then you need to get an accountant in that country to file your tax returns. As mentioned, almost anything connected with your job can be deducted as an expense, right down to the dry cleaning of your tie!
Wherever you live and work, expect to deduct between 25% to 35%% of your net income as tax due. There really is no legal way to avoid tax, unless you are very rich. Avoidance attracts harsh penalties, ask the likes of Boris Becker and Michael Schumacker, who both narrowly avoided jail terms.
Just a small nit-pick: in the UK tax AVOIDANCE is legal although one now has to declare any such shemes of which one is making use; presumably so that our legislature, who are incapable of writing watertight bills, have a heads up from the less cerebrally challenged.
OTOH, tax EVASION is illegal.
Basil - worked overseas, used accountant, told truth and still got a couple of years (legally) UK tax free. Even those where I had to pay had foreign tax taken into account.
I had previously run a very small business and did not use an accountant. Despite telling the truth, I ended up with the Collector's heavies knocking on the door. All eventually sorted out but it was a hassle.
HMRC will not take a private individual as seriously as they will an accountant; bit like the legal profession only really respond seriously to another lawyer.
OTOH, tax EVASION is illegal.
Basil - worked overseas, used accountant, told truth and still got a couple of years (legally) UK tax free. Even those where I had to pay had foreign tax taken into account.
I had previously run a very small business and did not use an accountant. Despite telling the truth, I ended up with the Collector's heavies knocking on the door. All eventually sorted out but it was a hassle.
HMRC will not take a private individual as seriously as they will an accountant; bit like the legal profession only really respond seriously to another lawyer.
