VAT Recovery on Aircraft

We have helped a number of businesses and individuals with the purchase of aircraft determining the best way to make the purchase in order to recover the VAT and to manage personal and corporate taxes.

It’s fair to say HMRC can be skeptical about the position, but they can’t ignore the legislation and case law.  They will be very interested to see who the pilot is and whether they hold a PPL, CPL or ATPL.

When buying an aircraft you should consider the tax rates.  If you take the money out of your company to buy the aircraft personally, the tax rate could be high after paying NI and PAYE, getting on to around 53.5%!

You could look at the company buying it.  If the aircraft was an executive perk or where there wasn’t any economic business activity, it’s unlikely that the company can reclaim the VAT.  You could be taxed 20% of the market value of the aircraft  plus your share of the running costs if the company pays them. The company should be able to claim a tax deduction for these costs as remuneration, this isn’t cheap but it is more tax efficient than funding it through your own salary or dividends.

On the other hand, if the purchase is made for genuine commercial economic business activities and business trips, the VAT can be recovered and there will be no tax benefits. Your access to the aircraft needs to be managed and probably rented to you at full commercial rates, unless of course, you and others are just using the aircraft for business use e.g. meetings abroad so that there are no tax problems.  The aircraft logbook will always set out where the aircraft has been and who was the pilot.

If there is mixed use, so a hybrid method of taxation will need to be worked out.

When buying an aircraft, you must take the above into consideration to ensure you are paying the least VAT possible, whilst managing both personal and corporate taxes. We are able to help you choose the best route for your circumstances.   Of course for aircraft you can apply the same position to boats.

 

More from our tax experts

You can find all of our latest tax articles and tax resources here.

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