Claiming back Vat on training costs.
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Claiming back Vat on training costs.
I wonder if you could help with an inquiry regarding claiming back Vat on training costs. I have just recently been sent a demand from the Vat Office regarding the vat I reclaimed on my initial commercial license training and any other flying costs thereafter.
We all appreciate the current aviation and economic climate in Britain. Hence the lull in many pilots careers whatever their original intentions. I operate a limited company and spent majority of my time (unfortunately) offering services as a Professional Engineer. I also carry out flight instruction for local flying school. Which means spending the whole day at the flying school regardless of the number of customers.
The Vat Officer says that professional flying is a hobby, and therefore will not make any allowances for Vat. But the officer has not instructed me to stop collecting Vat for my services rendered whilst flying.
Has anybody had similar case and what has been the out come following their Appeal? I don't want to end up a test case for the vat man and this case becomes a precedence which affects other pilots in the future.
We all appreciate the current aviation and economic climate in Britain. Hence the lull in many pilots careers whatever their original intentions. I operate a limited company and spent majority of my time (unfortunately) offering services as a Professional Engineer. I also carry out flight instruction for local flying school. Which means spending the whole day at the flying school regardless of the number of customers.
The Vat Officer says that professional flying is a hobby, and therefore will not make any allowances for Vat. But the officer has not instructed me to stop collecting Vat for my services rendered whilst flying.
Has anybody had similar case and what has been the out come following their Appeal? I don't want to end up a test case for the vat man and this case becomes a precedence which affects other pilots in the future.
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As an ex "tax man" although I should point out that VAT is a Customs & excise tax I am curious as to why you think you should be exempt from VAT on training costs?
VAT is an input and output tax on goods and services in connection with a registered business. In the UK this is (with some exceptions) charged at 17.5%. The way it works is that you charge tax for the output of finished products and services and then deduct the input tax from the raw materials or services used to produce the end product or service. The difference is paid quarterly to Customs & excise (or reclaimed if the end figure is negative).
Why do you think your "Training costs" constitute an input tax ? If your business is as a professional engineer" this is personal expense which is not allowable as you know. If you also carry out flight instruction for a local flying school you are presumably working for them either as an employee or freelance. In neither case would the VAT on your training constitute an input tax. If you are collecting tax for your services in connection with flying, you can claim the direct input tax for those services but not the tax that put you in a position to offer those services in the first place.
This is not dissimilar from the Inland revenue rules concerning claims for training cost allowances. You can claim for costs you directly incur as a result of your employment provide those costs are necessary and wholly as result of your employment . for example you can claim the cost of medicals or renewals if your employer didn't meet these costs. However you cannot claim for costs that put you in a position to undertake that employment in the first place. For example you cannot claim for the cost of your ATPL training now that you have been employed by an airline.
From your own statement you say the Customs & Excise officer has advised you that "professional flying is a hobby". It sounds as if they are stating that in connection with your business it may well be. As with all matters concerning Tax and VAT it is best to get expert advice. That will probably mean paying for it. I would not rely on the opinions received on this board (including mine !)
In summary most individuals cannot claim VAT back for their professional Pilot training and being registered for VAT most definetaly doesn't allow an individual or company to claim VAT back for personal expense.
Not sure why you think this is "Rumours & News".
VAT is an input and output tax on goods and services in connection with a registered business. In the UK this is (with some exceptions) charged at 17.5%. The way it works is that you charge tax for the output of finished products and services and then deduct the input tax from the raw materials or services used to produce the end product or service. The difference is paid quarterly to Customs & excise (or reclaimed if the end figure is negative).
Why do you think your "Training costs" constitute an input tax ? If your business is as a professional engineer" this is personal expense which is not allowable as you know. If you also carry out flight instruction for a local flying school you are presumably working for them either as an employee or freelance. In neither case would the VAT on your training constitute an input tax. If you are collecting tax for your services in connection with flying, you can claim the direct input tax for those services but not the tax that put you in a position to offer those services in the first place.
This is not dissimilar from the Inland revenue rules concerning claims for training cost allowances. You can claim for costs you directly incur as a result of your employment provide those costs are necessary and wholly as result of your employment . for example you can claim the cost of medicals or renewals if your employer didn't meet these costs. However you cannot claim for costs that put you in a position to undertake that employment in the first place. For example you cannot claim for the cost of your ATPL training now that you have been employed by an airline.
From your own statement you say the Customs & Excise officer has advised you that "professional flying is a hobby". It sounds as if they are stating that in connection with your business it may well be. As with all matters concerning Tax and VAT it is best to get expert advice. That will probably mean paying for it. I would not rely on the opinions received on this board (including mine !)
In summary most individuals cannot claim VAT back for their professional Pilot training and being registered for VAT most definetaly doesn't allow an individual or company to claim VAT back for personal expense.
Not sure why you think this is "Rumours & News".
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V.A.T. on training costs.
I can only repeat what I have posted before on this B.B. which is my own experience and the rules may have changed since 1981 when the following happened:
I registered for V.A.T. as a sole trader in an occupation which had absoloutely nothing to do with flying and when I only held a P.P.L. On my initial inspection and introductory chat on registering, the V.A.T. inspector advised me that as a sole trader, anything I did for a fee was liable to V.A.T. Several years later I got my C.P.L. and then decided to get the I.R. Though I had made no attempt to claim back V.A.T. on my C.P.L. training (of which there wasn't a lot anyway), the refund of the V.A.T. on my proposed I.R. training looked attractive. I telephoned the local V.A.T. office and explained to them what I wanted to do because, as a C.P.L./I.R. I would be able to charge organisations for my services on which I would be obliged to charge V.A.T.
I was advised that what I proposed was O.K. but that the increase in V.A.T. claimed back would trigger an inspecton. I was to advise the inspector of the circumstances and I should be O.K.
I got the ticket, paid the bill claimed back the V.A.T. and received the inspection. The V.A.T. inspector advised me that what I had done was not correct and that the V.A.T. would have to be repaid. I objected and she promised to get further advice. In due course I received a letter requiring me to repay the V.A.T. A few weeks later a friend asked me for my advice on some aerial photography that he was planning. I gave him the necessary advice sent him a V.A.T. invoice for it (which, unlike a solicitor I did not expect him to pay!)and declared the V.A.T. which I did pay. I drew the attention of the V.A.T. official who had required me to repay the V.A.T. on my training to this invoice and advised him that without the C.P.L./I.R. I could not have given the advice.
This was accepted (grudgingly) and the reclaim of V.A.T. on my I.R. training costs was allowed!
I registered for V.A.T. as a sole trader in an occupation which had absoloutely nothing to do with flying and when I only held a P.P.L. On my initial inspection and introductory chat on registering, the V.A.T. inspector advised me that as a sole trader, anything I did for a fee was liable to V.A.T. Several years later I got my C.P.L. and then decided to get the I.R. Though I had made no attempt to claim back V.A.T. on my C.P.L. training (of which there wasn't a lot anyway), the refund of the V.A.T. on my proposed I.R. training looked attractive. I telephoned the local V.A.T. office and explained to them what I wanted to do because, as a C.P.L./I.R. I would be able to charge organisations for my services on which I would be obliged to charge V.A.T.
I was advised that what I proposed was O.K. but that the increase in V.A.T. claimed back would trigger an inspecton. I was to advise the inspector of the circumstances and I should be O.K.
I got the ticket, paid the bill claimed back the V.A.T. and received the inspection. The V.A.T. inspector advised me that what I had done was not correct and that the V.A.T. would have to be repaid. I objected and she promised to get further advice. In due course I received a letter requiring me to repay the V.A.T. A few weeks later a friend asked me for my advice on some aerial photography that he was planning. I gave him the necessary advice sent him a V.A.T. invoice for it (which, unlike a solicitor I did not expect him to pay!)and declared the V.A.T. which I did pay. I drew the attention of the V.A.T. official who had required me to repay the V.A.T. on my training to this invoice and advised him that without the C.P.L./I.R. I could not have given the advice.
This was accepted (grudgingly) and the reclaim of V.A.T. on my I.R. training costs was allowed!
Last edited by P.Pilcher; 7th May 2003 at 05:24.
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As this seems to be an issue that crops up regularly, why doesn't someone with an interest get the definitive answer from the Inland Revenue and Customs & Excise about the various issues here? It seems that this is something that could usefully be done by one of the many flying or pilot or training organisations? YOu would need to goto the top for it to be worth having, rather than some clerk at the local office.
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Perhaps someone on the RotorHeads forum could also help - I know from speaking to numerous heli-schools they usually say you can register and claim back the VAT - how do those guys go about it?
This is a subject that has confused me a lot recently and a C&E officer I spoke to confused me even more...I said if I set up my own business...selling pleasure flights..and voluntarily registered for VAT..and charged my customers VAT...why wasn't I able to claim back VAT from training costs within the last 3 years - his answer was that flying was a hobby...even commercial training was a hobby - at which point I realised he was a eediot and left him where he was standing.
This is a subject that has confused me a lot recently and a C&E officer I spoke to confused me even more...I said if I set up my own business...selling pleasure flights..and voluntarily registered for VAT..and charged my customers VAT...why wasn't I able to claim back VAT from training costs within the last 3 years - his answer was that flying was a hobby...even commercial training was a hobby - at which point I realised he was a eediot and left him where he was standing.
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I can confirm this - at least two people I know of have registered for V.A.T. and then claimed the vat on the cost of training for helicopter instructor ratings, subsequently to invoice schools for their services including V.A.T. when instructing.
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Many thanks to one of the chopper guys for this...but as he said...dont take it as gospel..get proper advice! ....
"Set up a limited company and register for VAT,
Write a business plan including details of how you are going to generate taxable income, ie who your clients will be, ideally this should be a number of different flying schools, you will need this to justify your registration.
Find someone who provides services through a limited company (IR35 compliant), I find my wife useful for this amonst other things.
Get them to bill through your company thus generating output VAT while you are training.
Claim back the input VAT on your training.
You can also ofset your training cost against the revenue earned by the other person thus reducing income tax liabilities.
By insurance to cover the fees of the resulting investigation by Customs and inland revenue.
Whilst your at it might as well pay scale charge and fuel benefit tax and put all your road fuel through the company too."
"Set up a limited company and register for VAT,
Write a business plan including details of how you are going to generate taxable income, ie who your clients will be, ideally this should be a number of different flying schools, you will need this to justify your registration.
Find someone who provides services through a limited company (IR35 compliant), I find my wife useful for this amonst other things.
Get them to bill through your company thus generating output VAT while you are training.
Claim back the input VAT on your training.
You can also ofset your training cost against the revenue earned by the other person thus reducing income tax liabilities.
By insurance to cover the fees of the resulting investigation by Customs and inland revenue.
Whilst your at it might as well pay scale charge and fuel benefit tax and put all your road fuel through the company too."
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Thanks to a lovely woman inthe rotary wing forum.....she had this to say....
THIS IS QUITE LEGAL!!!!!!!!!!!!!!
I was told about it by my flying instructor, and I asked an accountant, who told me to phone the VAT helpline and check. I did, and they said it was fine. I didn't set up a limited company; I simply said I was a sole trader, a helicopter pilot, training at the moment. Being self-employed anyway, I had to register my day job for VAT too, but that actually saved me money. My accountant set it all up for me, although I do my own quarterly returns now, as it's very easy.
Don't believe it? Well, a couple of months later, I got a phone call from my VAT office, to ask me how I was getting on. I told them fine, and asked again if it was legal to claim training costs, emphasising (honest soul that I am) that I wasn't likely to be earning any money from helicopter flying for at least a couple of years. ""Helicopter pilot?" said the lady: "That's interesting. Never had one of those. Some training you can and some you can't; let me look it up". She did and assured me it was quite legal. After a bit of further chat, she asked what my turnover was. She then told me I was well below the VAT threshold, but then: "Oh, I see, you just registered to claim back VAT on your helicopter training really, didn't you?". I said yes, I had, and she said that was quite legal.
So hope it helps...
THIS IS QUITE LEGAL!!!!!!!!!!!!!!
I was told about it by my flying instructor, and I asked an accountant, who told me to phone the VAT helpline and check. I did, and they said it was fine. I didn't set up a limited company; I simply said I was a sole trader, a helicopter pilot, training at the moment. Being self-employed anyway, I had to register my day job for VAT too, but that actually saved me money. My accountant set it all up for me, although I do my own quarterly returns now, as it's very easy.
Don't believe it? Well, a couple of months later, I got a phone call from my VAT office, to ask me how I was getting on. I told them fine, and asked again if it was legal to claim training costs, emphasising (honest soul that I am) that I wasn't likely to be earning any money from helicopter flying for at least a couple of years. ""Helicopter pilot?" said the lady: "That's interesting. Never had one of those. Some training you can and some you can't; let me look it up". She did and assured me it was quite legal. After a bit of further chat, she asked what my turnover was. She then told me I was well below the VAT threshold, but then: "Oh, I see, you just registered to claim back VAT on your helicopter training really, didn't you?". I said yes, I had, and she said that was quite legal.
So hope it helps...
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The facts as I understand them are you have to be making "taxable supplies" in order to reclaim input taxes. e.g. schools cannot reclaim VAT because they do not charge VAT on their services - likewise Banks. However if you charge VAT then you can claim it on the input tax.
Don't believe me though as I'm not a VAT lawyer. I have however run 101 companies and this is what the accountants tell me. I don't believe them either as they are not VAT lawyers - they do know more than me - and (it seems) more than an ex-Inland revenue empoyee.
Don't believe me though as I'm not a VAT lawyer. I have however run 101 companies and this is what the accountants tell me. I don't believe them either as they are not VAT lawyers - they do know more than me - and (it seems) more than an ex-Inland revenue empoyee.
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beware the tax man
Many years ago, I was in the same position, and the VAT was only one side of the problem....
The tax man will consider "benefit in Kind".....
If you benefit from your training then you have in his eyes a benefit. He does not like that, so beware....
A good accountant, and your knowledge of "recurrent" training, and the legal requirement to undergo this "recurrent" training will see you win this battle.
Good luck
The tax man will consider "benefit in Kind".....
If you benefit from your training then you have in his eyes a benefit. He does not like that, so beware....
A good accountant, and your knowledge of "recurrent" training, and the legal requirement to undergo this "recurrent" training will see you win this battle.
Good luck
