Claiming training VAT back

RedC1

Hi all!

I am currently training to be a commercial pilot and have nearly competed the ATPL ground exams. Thereafter, I need to pay out a further £20,600 for the final CPL / IR practical training.

As a pilot, I will need to be self employed and work on a freelance contact to contract basis.

If I register as a sole trader now, can I clam back the VAT even though I will not be earning until after training is complete?

It would bring the costs down to around £17,000 which would help a lot.

Moreover, can I claim back VAT on any of the £28,000 that I have spent so far even though I have not been registered as a trader?

Many thanks,

Danny

TheCyclingProgrammer

You can't reclaim any VAT unless you also register for VAT. This means you'll need to learn about the VAT rules for providing your services as a pilot and when you'll need to charge VAT.

As for reclaiming the VAT on that particular expense, it's hard to say. The expense itself probably wouldn't be an allowable expense for tax purposes as there isn't a trade purpose - it's training of new skills that puts you personally in a position to trade. For that reason it might be considered a personal expense for VAT purposes too which is would mean you can't reclaim the VAT.

Probably best to talk to your accountant or HMRC about this.

JasonLVC

RedC1 wrote: »

Hi all!

I am currently training to be a commercial pilot and have nearly competed the ATPL ground exams. Thereafter, I need to pay out a further £20,600 for the final CPL / IR practical training.

As a pilot, I will need to be self employed and work on a freelance contact to contract basis.

If I register as a sole trader now, can I clam back the VAT even though I will not be earning until after training is complete?

It would bring the costs down to around £17,000 which would help a lot.

Moreover, can I claim back VAT on any of the £28,000 that I have spent so far even though I have not been registered as a trader?

Many thanks,

Danny

If you are a sole trader, the training creates an intangible "asset" which does not attract corporate tax relief (because you are a sole trader), in other wods the training may not be tax deductible in a sole trader structure. If you were a Limited Company then the cost of training the employee (you are the employee) would be tax deductible as a business expense by your company.

As you've already incurred substantial training costs in your own name, you may not be able to get these costs into a company but there is case law on this http://www.hmrc.gov.uk/manuals/eimanual/eim01235.htm so maybe not all lost.

For VAT, provided you are trading or intend to trade, you are entitled to register for VAT. An intending to trade registration may require a few more hoops to jump through but not impossible. Those hoops are HMRC will ask more about when you plan to start trading, your potential clients, how its funded, etc. It may be easier to not mention you intend to trade at all and just leave application as a straight registering for VAT. If you plan to start trading in next 12 months then that should be okay. if your training means you are 2-3 years before trading then it might be a struggle to get the VAT back.

Once registered you then reclaim input tax incurred post regisration. You can also reclaim VAT incurred 6 months prior to your registration date, so you need to decide what date to put on your VAT registration application. If you use a current date, then it may disallow invoices you paid more than 6 months ago. If you go for an older registration date to scoop up those invoices, but are still "intending" to trade, HMRC may make it difficult for you to get a VAT number by asking allowing you to back date so far back and still not be in a position to actually make sales.

Once you are qualified, airlines would engage with you (or your VAT registered company) and you would charge them VAT for your services (depending upon airline you may not nee to charge VAt but worry about once you;ve got your wings).


If you do reclaim all this VAT and then never actually trade (ie, its not unusual for people to have the training as a hobby rather than as a career), there is potential for HMRC to claw all that VAT back, so its not a case of reclaiming and then walking (or flying) away if you know what I mean.

System

Also if you look around the net there are numerous cases of people following this route for pilot licensing and then, because of a lack of experience end up as PAYE with HMRC breathing down their neck for repayment.

Pennywise

!!!!!! wrote: »

Also if you look around the net there are numerous cases of people following this route for pilot licensing and then, because of a lack of experience end up as PAYE with HMRC breathing down their neck for repayment.

Yes, if you become VAT registered in anticipation of trading, HMRC will usually repay the VAT you incur on a conditional basis pending a review if you don't actually ever start to trade. It's an anti-avoidance provision to prevent people registering only to reclaim VAT. If you did register and claim and didn't end up being self employed and invoicing your airlines with VAT added, then you can expect a bill to pay back the VAT you claimed in the first place.

RedC1

Ok think I get the idea guys, thanks for your time. Just a quick one:

If I set up a limited company for providing ground training (written exams) and flight training, I could start trading the company straight away, however just teaching for ground exams and then expanding the business to give flying lessons after next year (a legitimate idea, not a tax avoidance plan).

To this end, I would not need to get a conditional tax repayment correct? Regardless of how much or little turnover through ground training.

Many thanks

TheCyclingProgrammer

It really sounds like you're at the point where you need to engage an accountant to discuss your ideas IMO.

System

One point. If you intend getting PPL-FI then you can not charge for lessons.

Whichever route you take be it CPL-FI or PPL-FI you still have a further 30 hours dual plus 125 hours groundschool to do which won't be cheap even with VAT reclaimed