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By 4535jacks
#1853369
I am planning on leaving my job next year to become a flying instructor offering a variety of aviation services although my primary service will be freelance instructing.

I am planning on doing a FI(A) rating and CPL in the next 12 months.

I have been advised to set up a company now and become VAT registered as I will be able to charge the cost of training to company and claim the VAT back.

As you can probably tell, I am new to this and so looking for some advice or recommendations for an accountant with knowledge of aviation that can advise.

How do most freelance flying instructors operate, do they set up a Ltd Company or operate as a sole trader?

TIA, Jacks.
#1853377
Most people try to avoid to get VAT registered. The VAT-man is an assertive beast and they need to be satisfied every three months; it also means you have to charge VAT on everything you do and that means that you are likely to be more expensive than other instructors who offer the same basic rate but are not VAT registered.

You would have to check but I think the VAT Threshold is around 80k

I don't know how much CPL+FI is but thought that 15-20k should do it so the most you can probably recover is 4k.

Setting up a Ltd Company means having to supply accounts every year done by an accountant (unless you are one) and that will cost 1-2k per annum; if you work as a sole trader your accountancy bill should be smaller unless you have something special in your financial set up.

There are some additional (smaller) benefits but they are not going to be that relevant to you if the Ltd Company consists of a person offering some personal services, indeed HMRC is looking at similar set ups with a beady eye.

Anyway the best news is that you are able to leave a job and do something you clearly are looking forward to! COngratulations.
#1853383
As @Flyin'Dutch' has said, in the current HMRC climate, trying to use a Ltd company for ‘sole trader’ like activities can bring all sorts of issues. You won’t be able to earn more than about 15k a year instructing at most anyway.

You also need to get some decent advice on claiming back costs of training - it is my understanding that you can offset subsequent professional development but not initial training costs, I would be very surprised if you can charge the cost of the CPL and FI. Business Purpose Test - “is clear that, for example, a completely new specialisation or qualification will be acquired as a result of the expenditure, it is unlikely that the expenditure will be wholly and exclusively for the purposes of the existing trade”.

Good luck with it all
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By Sooty25
#1853612
Don't dismiss this so quickly. It depends on what you intend for the future and what a "variety of aviation services" actually encompasses.

If you intend to grow this to more than just being a lone instructor, a Limited Liability Company from day one might just make sense. Personally, I wouldn't start any new venture other than within a Ltd company.

Ltd company accounts do have a higher accountancy requirements, but if you do your own book keeping with a good accounts program that your accountant supports, a lot of his work is done. Turn up with a carrier bag full of receipts and then the costs spiral!

Writing off training costs. Both of the qualifications you mention are fee earning professional qualifications which are little different to a HGV instructor or an electrician sitting his 18th edition wiring regs, they are a requirement of the job and have no benefit whatsoever unless put to work. I think they can be classed as a justified expense. Every new business requires initial investment, and is expected to make a loss in the first couple of years, which can be rolled over to future years.
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By AndyR
#1853871
Freelance as a new FI?

How are you going to unrestrict your FI?

Being a freelance instructor without a tie in to a DTO and/or ATO is almost impossible these days, with requirements for Course Completion Certificates, the inability to offer a lot of ab initio and so on.

Much as I admire your aspiration, even full time (as a new FI, without the privilege to teach CPL, ME and IR, you are unlikely to pay back the cost of your investment in CPL and FI for a couple of years.

Or have I misunderstood what you are trying to achieve?
#1853976
Not feeelance initially but once unrestricted then I would like the option as a I have seen some job adverts for self-employed instructors.

That said, AFAIK, I would be able to do binnual instructor flights on the side while still working to unrestricted FI(A).
User avatar
By MattL
#1853988
Potentially a bit of apples and pears here - vast majority of FIs are ‘self employed’ and work as a contractor to the school, whereas ‘freelance’ implies you are going to operate outside of a DTO/ATO (which you can’t do unrestricted)
#1853995
I have operated an aviation related Ltd company for 8 years now, I've just paid my accountant for this years services, the company operation, submission of mandatory reports and operating a payroll system for 2 people, I paid £450.

From my own experience of operating a Ltd company I would say it is neither complicated or expensive, with the caveat that I am not VAT registered ... if only I had that turnover!

PS . I recently signed off on my most recent accounts ... year to 30 June 2020 .... profitability down +90% and no government support ... that is the real world I have to deal with. The only compensation, quite logically, is that my corporation tax bill was also down 90% .... :wink:
Flyin'Dutch', Sooty25 liked this
#1854054
Matt, thanks for the clarification.

Yes I am looking at self employed rather than freelance. Once unrestricted I would like to do some small things away from an ATO or DTO such as biannuals and tailwheel conversions.

I am trying to work out if I should set myself up as a Ltd Company or sole trader and whether I set it up now before I start my training so I can use the training as a deductible cost or wait till I am qualified. The other question I am trying to answer is whether to register for VAT to claim the VAT back from training and no pay VAT if a buy a commercial vehicle for commuting to and from the airfield. It sounds like there are too many disadvantages to being VAT registered.
#1854065
Who, as you write, has advised you that:

1. you should up a Ltd company,
2. Will be able to claim your training expenses back,
3. Should register for VAT?

If they are a, to you known accountant with experience in this field then go with their advice; if they are an accountant without specific aviation experience, discuss the points raised, they will surely be able to advise further.

If they are a bloke in the local....

Good luck!
#1854108
Dutch,

A flying Instrcutor I was chatting to that has followed a very similar path to the one that I will be following.

One of the main reasons I have been looking at a limited company rather than sole trader to work as a self employed instructor at one or more ATOs is the protection of personal assets.
Flyin'Dutch' liked this
#1854124
Fair enough - it is generally considered that the Ltd Company protection of personal assets is of less robust in a tiny company than many would like to believe, and investing in appropriate insurance, easier and cheaper.

But each individual situation is different of course.