Tax Relief on training costs
 

Hi there Folks,

I am looking for info on UK Tax Relief on fATPL training costs.

Does HMRC allow Tax Relief on these costs?

Have done a search for previous threads but could not find any.

Thanks,

StraightLevel.

The simple answer is NO, there is no tax relief available on any of your training costs.:{

Many Ryanair Brookfield Contract pilots have successfully reclaimed VAT on the cost of their type ratings and I know of one person who has successfully reclaimed VAT on all professional their training. In addition to that many on PPrUNE claim to have had some success. Though many have also had knockbacks. That's the British tax system for you.

Ask a good accountant!!!

Afinehelmet.

I will. I am trying to find out if a precedent has been set. Thank-you for your helpful post. I appreciate that it has taken you a lot of time and effort.

I would be interested to hear from anyone who has successfully claimed Tax Relief from HMRC for the cost of their fATPL.

Thanks,

StraightLevel

Tax relief on flight training was phased out in August 2002, prior to this date you were able to claim 23% tax relief on training.

Any self employed contract pilot would be able to claim tax relief on renewal and rating costs (any independent contractor in any field of work may claim relief against any self funded training). As a newly qualified CPL/IR holder you would not have sufficient experience to work as a contract pilot. Note although Ryanair cadets through Brookfields are "contract" pilots, if ever audited for IR 35 compliance then HMRC would consider them "disguised employees under UK law, however I am not sure how Irish law stands on this issue.

IR 35 regards how you pay yourself and how you are employed by your own Ltd company, ie, payment of dividents and not paying personal tax.

In order to legitimately claim as a contractor you need to have more then one stream of income, therefore working only for BRK would class you as employed by them as they are your sole income. If you were to do other work say through another few agencies then this would help your cause should HMRC take a peek at your books. The only thing is when you register as a company, you have to choose a field of work, so make sure your chosen field is broad enough to cover any other incomes you might have.

With regards to training costs. You can only claim once you are a profession, and therefore only from CPL onwards. This would mean you have to have been able to work for money at that point. The implications would be that your licecnce would have had to be made into a CPL before continuing. This means that intergrated people almost certainly could not claim.
Saying that a CPL pilot could not be employed as a contractor is simply not true as I know a lot of people that have come out of training and got jobs under contract status doing delivey flights and flight instructing. Once you have that CPL, you are a qualified commercial pilot, and any subsequent training you undertake only adds to the likelyhood of more work for your company.

Whistle Blower,

The government IR35 regulation is to ensure that those who are running Limited Companies (in particular those offering services) and hence gaining tax benefits via dividend payments and claiming expenses against tax are truly independent contractors and not disguised employees. Look at the Dragonflycase one of the most recent sucessful investigations by HMRC concerning IR35 compliance, that cost the individual involved 99000 in "unpaid back tax", so that did become a matter of personal tax.

portsharbourflyer

I think i maybe did not phrase it correctly. That was exactly what I was trying to say. In paying captial gains tax and taking dividend payments, you are reducing your personal tax but a significant amount.

As you also point out Whistle Blower it is quite common for FIs to work on a self employed basis. However I would say as a restricted FI needs to be supervised then in my opinion it is questionable if they could be truly self employed (the need to be supervised would certainly raise questions for IR35 compliance, this is only with reference to those intending to route payments through limited companies).

I would recommend to the original poster, do the CPL and FI first, get employed as an FI(R), get your restriction lifted. Once the restriction is lfted you could then start a limited company and begin working as a freelance instructor. Then you could easily argue the IR is a rating that is useful and required for your job. You could then put the expense of the IR against tax and claim back the VAT if registered.

Would this extend to privately funding a A320/1 or 737NG rating? I ask as an experienced out of work JAA ATPL holder who lacks a valid rating in todays market.

Also at what rate can you reclaim the tax? Is it limited to VAT or can you offset that against the 40% income tax?

4500 jet hours on an older aircraft type doesn't appear to count for much at the moment, hence my reluctant desire to find out more about possible ratings.

The above details on taxation are interesting, but seem to relate to setting up a limited company. However, my self employment, because it is small turnover, is not as a limited compay, or a registered company at all, merely as a self employed sole trader. I claim tax relief through my tax return annually for any training and renewal costs, by putting them against my profit (or loss). I work mainly for one client. I have an income as a emploee also, which is PAYE taxed. It is this tax which I claw back if I have overpaid on the year due to my sole trader self employment making a loss if, say, a big training bill came in that year.

I have no protection in the case of my company going bust, like a limited company would give: they can come and get my house. However, as I have sole control over incomings and expenditure at a very small and manageable level, with little fixed cost, this is not really a risk. The cost of setting up a limited company with directors and a named secretary far outweighed any benefit to me. My tax situation seems simpler than the IR35 status you describe.

Jimbosjet, as long as you start working as a self employed contract pilot after completing the rating then you would be able to write off the expense of the rating against tax.

If you were subsequently employed by an airline (as a permanent employee) with that rating then you would not be able to claim any tax relief.

Mike, my aplogises when the subject of tax relief is mentioned I do tend to always assume people are referring to Ltd companies, but as you have stated soul trader is another method by which you can be self employed. However HMRC are less concerned about soul traders because as you stated you still paying tax via PAYE at normal rates.

The general rule of thumb for PAYE (employed) UK taxpayers is that you cannot claim tax relief on training to 'put you in a position to work', only self-financed training that you are required by your existing employer (or the law) to complete can be claimed for.

No. Unless you aim to be a contract pilot.

In general, you need to be a contract pilot operating through a company to have any chance of success.

Otherwise, not worth debating unless you have the financial knowledge to know your way around it (or are a contract pilot who has succeeded in doing so).

MH - your situation appears to be precisely what IR35 entails: largely working for one company as a contractor, and that contractor thus avoiding NI.

Companies are very cheap to set up - it is the VAT saving that is of question, not the tax savings against training materials - another matter entirely!

No, I pay NI, both as self employed contractor and employed peron. If your turnover is very small you can apply for an exemption to Class 2 NI, but I would think a Brookfield contract (eg) would be above the threshold for this.

Also, I thought this thread was about tax relief in general, not just VAT, although it is true that I was talking about income tax, or tax on profit. Perhaps I am mistaken. In addition, I was talking about training services from a Flying School, to renew ratings on my license, not training materials.

Alhough I do have an income from employment, since my self employed earnings are very low, I think the example stands for those who do not: the costs of training can be set against the profits of a sole trader in their balance sheet and tax return, just like a Corgi registered plumber would put the cost of renewing his annual Corgi certificate against his profit. Thus he reduces his tax liability due to training costs, so to answer the thread title, yes it is possible to claim tax back, but not when employed.

As to setting up a limited company, whilst, yes, the cost of actually buying a registered company number is small, I was advised that the accounting process is not such that you can do your own balance sheets, end of year accounts, and tax returns, therefore adding accountancy fees, which I do not have currently. Also you have to have (and in theory, pay) company directors and a company secretary. All of this sounded a bit complicated for someone who has only one bill (mostly) to send out each month to one client, so sole trader was the way forward for me. Also, if you are claiming back VAT, then by default you are requied to charge VAT on your services (you must anyway once your turnover is above a certain figure (is it around £60k - I don't know the latest figures?) which means you'll be doing a VAT return (whether sole trader or partnership, or registered company) every 3 months - not a lot of joy!

I don't know but I would suggest that a self employed contract Pilot working for one customer, or agency, is in a similar position to me, and sole trader is a lot easier and less complicated.

Rulings
 

Guys,

What everyone is putting here is correct, there has not to my knowledge been a ruling on this from HMRC.

In theory cost can be claimed back as stated and in the conditions above. Also with regards to VAT, this too can be claimed as long as you are charging your customers as well, and you are VAT registered at the time of rating purchace.

The problem that may be encountered is that should someone request a ruling, or and audit/investigation take place on a contract pilot in these conditions, then mark my words, HMRC are very good at finding information, and sure as damn it, this thread would appear somewhere within the case notes.

Be very careful as to what you put down here, and don't state things as 'matter of fact' unless you are 100% certain.

Ltd companies are covered by IR35 due to the capital gains tax that is charged at 20% of company profit. The reason this is here is to stop one person, (MR. A), registering themselves as the Director, Employee, AND Share holder.
This means "MR.A" gives himself a salary as director....(allows the company to pay £5225 per year salary which covers the NI stamp for the year at no cost, plus is in the 0% tax bracket).
"Mr A" can also be the Employee, who claims all the expenses but not salary. (Expenses are not taxable).
All the money that is left is classed as "Company Profit". This means that at Divident time, the payout to the share holders....("Mr. A"), is only taxed at 20%. Should this have been paid in salary then it would have been taxed upto 40%.
So, this is completly IR35.
The only way round this is to calculate your total earnings per year in advance. (Say working on 75 hours per month flying). Then this means you pay normal personal tax on majority of the company earnings as this is salary. Then legitimately at the end of the year, your company could have made profit if say you actually worked an average of 80 hours per month. This can legitimately be claimed as a divident and to the best of your ability, you have been working outside the IR35 rules.
Less tax efficient, but more efficient then being caught for "Aggressive tax evasion".
Don't forget, you can also run the company at a loss per year. This is not illegal. Say you only work average of 70 hours a month instead of 75. Salary must be paid at the agreed rate, so technically the company has not enough money coming in to make a profit. Role over the loss to the following year, change the amount the director earns in salary, and off you go. The thing you are trying to do is run the company efficiently within the rules. If the company breaks even, that is not a bad thing at all.
Like i have said in another thread. Make sure that your description of the company is broad enough to allow you to earn from other incomes. Try and make sure you have more then 1 income. IF you can find 3 different streams of income then this is perfect. Something like:-
1 = Contract pilot on long term contract at 15-20 days a month
2 = PPL ground school tutor 2 days a month. (Go to a flying club and offer your services to explain PPL subject for £5 an hour, 2 hours per night)
3 = Factory worker 2 days a month
This shows that you are earning from other areas, and not soley employed by the one contract agent. Remember, if you provide services, make sure that the brief is broad enough to allow things like factory workable to be a fairly logical stream of income.

Only problem is, you are a sevice company working for one customer. Technically, you are an employee of that customer if you do not have a finite contractually agreed amount of work.

Slightly off topic but all fairly important information to take note of if you are wanting to try and claim back tax, vat, or right off expenses through either Sole Trader or Ltd Company.

ps - I hope you're not really 'soul' trader. My Soul just isn't for sale so you can't have it. And if you are thinking about anyone at BRK, none of them have a soul for you to trade!!

IR35:

IR35 - An Overview for IT Contractors

Whistleblower,

It is because I am a sole trader (no feet or fish jokes please) that I do not have to pay any "dividents" :eek: