Taxing questions
The 2010 budget in the UK comes into affect on 1st September of this year and may contain some dramatic changes in Value Added Tax (VAT) that will affect business aviation.
The European Union VAT Directive currently ensures that each member state must charge VAT on:
- Buying a private jet or propeller aircraft
- Chartering or hiring private jet aircraft or propeller
HOWEVER, the UK VAT rate is currently set at 0% for:
- Aircraft over 8000 kg
- Aircraft with 10 seats or more (including the pilots’ seats)
- International flights
This 0% VAT rate is the equivalent of making the aircraft purchase or charter flight exempt of VAT.
The 2010 changes to the UK VAT rules for private aviation has yet to be announced but PrivateFly.com has had its ear to the ground and understands that the following may well apply:
1. The 8000kg weight limit will removed making all aircraft liable for VAT charges at the current rate of 15% (or new the envisaged higher rate).
2. The 0% rate will only be applied for airlines operating commercially on international routes.
3. Airport Passenger Tax will also be abolished and replaced with a per aircraft departure tax which will be related to the aircraft weight or maximum seat capacity.
Months of uncertainty look likely as the UK private jet operators attempt to identify if they qualify as an airline under this new scheme. Many questions remain unanswered such as:
- How will a manufacturer or aircraft sales broker determine if the purchaser of a private jet should be charged VAT or not?
- Obviously every new customer will claim that they will be using their aircraft for international flights and as such are VAT exempt (or set at 0%). Will the VAT be charged in all cases and held in a solicitor’s escrow account until the HMRC determines the valid exemption?
- How will the new departure tax be applied to private jets?
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