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Tax Relief on Bond Repayment?
I recently left my employer after two years service. When I joined, I had to take out a loan for £15000 type rating, and then the airline paid into this loan account every month. As I left before the end of the 'bond' period I had to pay the company the outstanding sum of £7500 or continue with the loan.
I elected to pay the loan off. I am now wondering if I can claim the tax back on this repayment. (NB the company payment attracted no tax when it was used to pay off my loan each month). I have now joined another company where I have had to take out a loan and the company repays 1/36th of the capital sum each month (no interest though). Once again no tax is attarcted to this monthly repayment. Shurely some inconsistency. From the BALPA website: Q6: Can I claim type rating training expenses? A: Tax relief for the cost of type rating courses is a contentious issue. In HMRC's view training costs do not attract tax relief as they fail the 'wholly, exclusively and necessarily in the performance of the duties of employment ' test. Their argument is that type rating training is undertaken to put a pilot in a position to carry out his duties and not in the performance of his duties. However, if an employer pays for type training, the costs incurred are not treated as a taxable benefit. This inconsistency of treatment is, in BALPA's view, unacceptable and a matter of ongoing discussion with the Policy Division of HMRC; but don't hold your breath! I just wonder if anybody out there has had success with claiming the tax back...and if so how they did it. Anybody got any advice... |
Open to become test case?
Balpa seem to have matter covered,so far at least,but this might also help.
Of course you could always try and possibly become a further test case but no doubt that would be costly and not worth it on an individual basis. It would probably invite an HMRC enquiry into any tax return submitted incurring time and expense possibly outweighing the perceived benefit. So suggest that you review in due course and ask Balpa again if they have made any more progress and then seek to backdate claim if relevant. Do keep all paperwork just in case. |
Thanks DJS.
I have contact BALPA...but await a reply. I am struck by the contradictions inherent in the HMRC position: How can they make monthly bond repayments tax free, yet paying off the lump-sum is not. Bizarre. |
good luck to you asking BALPA, I asked the same question 5 years ago, still awaiting a reply.
I spoke to Inland Revenue a legnth, answer was a definate NO !! keep us posted if you are successful ! We can always backclaim !! Good luck |
If you leave your employer and have to pay for a bond you should be able to deduct the payments from your income tax. I would wonder if the rules in UK could be so different to the mainland.....
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I've just been through a lengthy discussion (or more accurately an argument) with HMRC about this. After about 18 months of letters backwards and forwards, I've just dropped my appeal and admitted defeat to the horrible little bleeders.
Basic story was... At my previous employer I had a "Training Agreement" which meant I paid back £9000 for the training, by way of a few hundred quid taken out of my salary each month until it was all paid off. I left before it was finished so they withheld my last pay check and I had to pay back the remaining balance in one lump. Called HMRC to ask if it was possible to claim the tax back, they said yes, so I did and was promptly given just under £2000. Was very happy and celebrated in good style! About 6 months later they wrote saying they were going to enquire into this claim. We argued back and forth for over a year on many issues, which I won't bore you with the details of now, but unsurprisingly they concluded it wasn't an allowable expense. I appealed against the decision, but have since seen a commissioner's report of a recent case of 2 pilots' battle on a similar front, which they lost unfortunately, and have dropped the appeal and paid them back the money (plus their healthy level of interest!!). Although their case was slightly different to mine (theirs was a bond, mine was not - I had to pay it back whether I stayed or left) the various conclusions in it were also relevant to my case, and it was fairly clear to me that if my case was also taken this far it would get the same result. I checked with the legal man at Balpa who represented them before I gave in, to check I was doing the right thing, and although not terribly helpful he did seem to think I wouldn't win, so not worth proceeding with it. All very disappointing in the end then. Had to give them back well over £2000, which was obviously a kick in the nuts to say the least. The whole thing has left me with even less respect (if that was possible) for the Tax Man. Not because of the outcome necessarily, if that's the rules then fair enough (even if it seems unfair to me), but because of the attitude and (lack of) intelligence of the person at HMRC who was dealing with my case. She was utterly incompetent in my view, totally unwilling or unable to understand what I was telling her - we just went round in circles for about 6 months arguing the same few points. At one point I even wrote to ask that the case be handed to her superior in the hope that it might find its way into the hands of someone with even an ounce of intelligence or common sense about them. Predictably that came to nothing too. Anyway, sorry to have bored you aces low, but hope it's been useful to you. The upshot of my case was that it's not an allowable claim unfortunately. If you decide to claim anyway, best of luck and let me know what the outcome is - I might just put the claim in again if you find a way of succeeding! Cheers |
Tax relief is available on training, but not to us pilots!
The company counts training as an operating expense and consequently it reduces their profits. This of course reduces the tax they pay. the Tax Man considers this as tax relief already given on the cost of training and consequently we as pilots are not able to claim it back. Of course the company has probably charged you the full value of your training and are making a profit out of the deal. As soon as pilots stop funding their own training this will stop. Hopefully soon - as the supply of pilots is diminishing. |
As soon as pilots stop funding their own training this will stop. It is true companies get relief on training and hence we are unable to claim back tax if a bond is broken early and partly repaid, but there is no link to self sponsorship. Dan are you KA or CX? |
You're correct. A standard bond isn't paying for your training - unless you leave early - and then it's your choice. I was bonded in my first job but managed to avoid paying the bond back when I left - by being made redundant!
Bonds aren't legal in Hong Kong. KA, BTW. |
KA also.......
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One of the things that emerges from a recent Special Tax Commissioner decision on this is that if contractually the airline arranges to take bond repayments from your salary whilst you serve your notice, then tax is only payable on the reduced amount of your salary. This potentially gives you full tax relief on the repayment depending on how much you owe.
It is therefore worth pilots negotiating with employers that this happens under their contract. The pilot saves tax and the employer pays less NI contributions on the reduced amount to the employee. |
Before I left my last employer, they stated categorically that I could not take a reduced salary for my notice period. They said it would be tax avoidance?
Maybe they were stringing me along but who knows? |
Has there been any more recent information on this. I am in a postion where I have paid a bond (training agreement) off in full and want to find out more about the tax implictions and possible benefits.
Cheers for any more info! |
Delving back into my previous history as an assistant inspector of what then was then the "Inland Revenue", the "Wholly, necessary and exclusively" stipulation has been the bedrock of expense claims for many decades.
The distinction that needs to be made here is that of employment. If you were already employed with an employer that required you to undertake that training at your own expense, then of course (assuming the wholly, necessary and exclusively criteria was met) the expense would normally be allowable. The revenue has never considered specific training within employment as a benefit in kind (bik) so that argument is redundant. If a potential employers offer of employment is conditional on you satisfying qualifying criteria (in this case a type rating) then that is an expense that is incurred in order to put you in a position to undertake said employment and therefore doesn't satisfy the "wholly, necessary and exclusively" criteria. In the nigh on 40 years since I waved goodbye to HMRC's predecessor, I have seen airlines move from an era where they all paid for training, to one where they got a bit fed up with paying for that training only to watch people avail themselves of it and then leave. This was countered by introducing "bonding" schemes. A few people failed to satisfy these "bonds" and pursuing them simply became added expense and inconvenience. The next stage in that evolution became "bonds" where the prospective employee needed to shoulder the financial burden up front in order to transfer the burden of risk. Nowadays the majority of airlines seem to employ some variation of this strategy whereby unless you have the qualifications they require (specifically a type rating) prior to an offer of employment, the cost of obtaining that rating falls upon your shoulders. Unless you were self employed when it may be possible to claim this as an input cost, it simply falls into the category of any other "loan" or expense that puts you in a position to undertake said employment. Not saying I agree with this, but that is a very simple explanation of the distinction and a very potted history of why we are where we are. |
I was prompted to consult my Accountant about this at the end of last year when I had to repay the small remainder of a bond. He referred me to an HMRC document: SpC569, which is probably available somewhere on the Gov.uk website. It refers to a couple of pilots and their case against HMRC in regard to tax relief on training costs.
In summary, the decision was that bonds do not qualify for tax relief. |
There is a summary here:
Two airline pilots received free training from their employers. Under the terms of their contracts, they would have to repay the cost of the training if they left the airline within a fixed period. Both pilots resigned their jobs, one in 1997-98 and the other in 2000-01 to join other airlines and repaid the training costs as required. They claimed this as an expense of employment in their self-assessment tax returns for the years 1997-98 and 2001-02 respectively. HMRC refused the claims saying the expense was not incurred in the performance of the taxpayers' duties under TA 1988, s 198(1). The taxpayers appealed. The Special Commissioner noted that the wording of s 198(1) was different for the two years in question. In the old form, the taxpayer had to be 'necessarily obliged to … expend' the expenses wholly, exclusively and necessarily in the performance of his duties, while in the new form, he was 'necessarily obliged to incur and defray … any amount … expended' on them. However, the Commissioner concluded that the old form applied to the new provision in relation to expenses, other than travelling expenses. Thus for the years in question, the nature of the duties of the employment objectively viewed had to require the expense. Now it was necessary to decide what were the duties of the employment. The appellants were both obliged to incur the expense of repaying the training fees. However, this expense was not wholly, exclusively and necessarily in the performance of the duties of the employment; rather it arose from the termination of the contract. The pilots had to repay the amount when their contracts ended, not in the performance of their duties. Thus the expense was not deductible. Furthermore, while for the two pilots concerned, the expense was necessary, the actual nature of the job did not compel the expense, because the job was one of flying aircraft. A pilot who was already trained would not be required to incur the expense. The taxpayers' appeals were dismissed. Hinsley and another (SpC 569) |
Oh that is good info. Thanks all. Sounds like it isn't really something I can follow up then! HMRC are fairly useless when you call them up.
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I'm in a similar position where I had to take out a loan (with BBVA) to pay for the initial training bond and this was then taken over by my airline when I started employment. Outside the bond repayments themselves (which seem to be currently off limits for tax relief) I'm paying interest on this training loan and am also required to maintain insurance to cover the value of the loan itself as well. Does anyone know how these interest and insurance payments are treated with regard to tax relief please? Thanks
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