VTRANS110600 - The supply of ships and aircraft: Aircraft: Contents
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VTRANS110610
Definition of an aircraft
VTRANS110620
Legislative history
VTRANS110630
State institutions
VTRANS110640
Airline operating for reward chiefly on international routes
VTRANS110610 - The supply of ships and aircraft: Aircraft: Definition of an
aircraft
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There is no current legal definition of an aircraft but as a guide the (now repealed) Air
Navigation order of 1954 (SI 1954/829) Article 73(1) defined an Aircraft as:
includes all balloons (whether captive or free), kites, gliders, airships and flying machines.
It further defined flying machines as:
means an aircraft heavier than air and having a means of mechanical propulsion.
The current Air Navigation order 2005 (SI 2005/1970) has no such definition but does contain
a “classification of Aircraft” under Schedule 2 Part A which includes in it a similar list as the
1954 order but also refers to aeroplanes (landplanes, seaplanes, amphibians and selflaunching motor gliders), power lift (tilt rotor) and rotorcraft (gyroplanes and helicopters)
under the term flying machine.
The Oxford English Dictionary defines an aircraft :- “flying machines collectively”.
For the purposes of Group 8, aircraft includes:
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aeroplanes (civil or military)
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helicopters
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airships
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drones (unmanned craft)
For the purposes of Group 8, aircraft excludes:
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space craft
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satellites
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missiles
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hovercraft (treated as ships).
VTRANS110620 - The supply of ships and aircraft: Aircraft: Legislative
history
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Pre 1 January 2011
Prior to 1 January 2011 the test for whether an aircraft was qualifying or not was based on the
weight of the aircraft and the use for which it was designed.
Measurement of weight
The weight of an aircraft is its authorised maximum take-off weight. This is specified:
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for civil aircraft - in the certificate of airworthiness in force for the aircraft
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for military aircraft - in the release documents issued by the Ministry of Defence.
From 1 January 2011
Following infraction proceedings by the European Commission the test for a qualifying aircraft
was changed to one based on the status of the business that operates the aircraft.
The changes do not, however, affect aircraft operated by State institutions for which the UK is
relying on a derogation to maintain the status-quo- see VTRANS110630
For all other aircraft a qualifying aircraft is one that is used by an airline operating for reward
chiefly on international routes. See VTRANS110640
VTRANS110630 - The supply of ships and aircraft: Aircraft: State institutions
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Following the changes of 1 January 2010 the zero-rating of supplies to State institutions can
be preserved under the derogation to Principal VAT Directive (Directive 2006/112) Article 371,
Annex X, Part B item 11.
Art 371
Member States which, at 1 January 1978, exempted the transactions in Annex X, Part B, may
continue to exempt those transactions, in accordance with the conditions applying in the
Member State concerned on that date.
ANNEX X
Part B – transactions which Member States may continue to exempt
(11) the supply, modification, repair, maintenance, chartering and hiring of aircraft used by
State institutions, including equipment incorporated or used in such aircraft.
Although the provision refers to exemptions (without refund) as the UK permitted refunds of
VAT at the relevant date of 1 January 1978 this was a condition within the meaning of the
Article.
State institution includes:
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The Crown (which includes The Queen in her official capacity and Parliament)
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Central Government departments and Agencies and persons exercising functions on
behalf of a Minister of the Crown as defined in VAT Act Sections 41(6), 41(7) and 41(8)
(for example Ministry of Defence, HMRC, Maritime and Coastguard Agency, Met Office,
Department of Transport, NHS bodies)
Devolved Administrations of Scotland, Wales and Northern Ireland including their
departments and agencies
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Local Authorities including fire and police authorities
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The Royal Mail
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Similar bodies in other countries
For the most part UK State institutions will be bodies as defined under the VAT Act 1994,
Section 41 and 33(3) and it is expected that the vast majority of the relevant bodies will know
whether they are a State institution under those provisions; see also guidance in V1-14
Government and Public Bodies.
However, the term State institution is wider than just these bodies, for example the Royal Mail
listed above. The list is not exhaustive and officers may have to consider claims that other
emanations of the State and other bodies fulfilling State functions are State institutions.
There may be difficulties in a few cases in deciding whether a body belonging to a foreign
country is a State institution or not in that country. Officers should also bear in mind that in
many cases other zero-rating reliefs will be available for supplies to these bodies.
The status of State institution will not automatically carry through to private contractors
engaged by a State institution but a contractor may be a State institution in its own right.
VTRANS110640 - The supply of ships and aircraft: Aircraft: Airline operating
for reward chiefly on international routes
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Overview
The terms and meaning of this legislation are quite vague and where an officer considers an
airline is wrongly treated as fulfilling the conditions and must first contact VAT Advisory team
with the full facts of their concern included an assessment of the overall loss of VAT (sticking
tax) and of any material mischief that has occurred, if any, as a result.
Airline
An airline is defined as an undertaking which provides services for the carriage by air of
passengers or cargo. The undertaking can a single legal entity or several such entities
operating together where there is a degree of mutual control, for example VAT and Corporate
groups.
In most cases VAT Groups and companies within a Corporate group of will be easy to define
but other, looser, relationships may be considered by HMRC as a single airline on a case by
case basis.
For example:
Aircraft operators for insurance and limited liability purposes as well as operational purposes
will often limit the number of aircraft any single legal entity owns. HMRC will normally accept
these arrangements as creating a single airline for the purposes of this legislation.
It is important that in considering the creation of a multi-entity airline that all the entities that
wish to be brought under that single airline umbrella are aircraft operators. The purpose is
simply to determine whether any particular aircraft is qualifying or not and does not affect the
normal inter-entity supply and liability provisions. Claims that two or more separate legal
entities (outside of a VAT or Corporate Group) should be considered a single airline should be
referred to VAT Advisory Team.
Businesses owning aircraft used for the transport of its staff will not normally be considered
airlines. However if that aircraft is operated by an associated company, separate from the
main business and otherwise fulfils the conditions set out in the rest of this guidance HMRC
will normally accept that associate is an airline.
Operating for reward
The airline must be providing passenger or freight transport services to a second party in
return for a consideration whether or not the operation is run for profit - see guidance in
VATSC30500. As above an associated company can provide a business with transport services
as long as the principle is adhered to.
As the supply of passenger transport is generally zero-rated the scope for VAT avoidance and
mischief is minimal. Freight transport services, on the other hand, can be taxed at standard
rate and careful consideration will need to be made as to the values applied where the
recipient is an associate entity and might not be entitled to recover the input tax in full- see
guidance on V1-12 Valuation
International routes
For the purposes of this legislation HMRC takes the view that any route that is not a wholly
domestic route within the UK is an international route. HMRC understands that this is the
approach taken in other Member States and that to do otherwise would be impossible to
implement and verify in practice; this approach appears to achieve the broad intention of the
Directive to tax the domestic UK consumption.
A domestic route is one that is between any two places within the UK and includes routes with
a flight path that may not be wholly within UK airspace.
The UK’s airspace is that over England, Scotland, Wales and Northern Ireland and up to 12
nautical miles from the coast.
Flights which do not physically land at that destination for example helicopters
delivering/collecting goods /passengers by means of a hoist or drops by parachute can be
considered operating on a route provided that was the aim of the flight plan.
Flights that are diverted from the original flight plan should normally be considered as having
flown under the original plan. For example an international flight that develops technical
difficulties and has to land within the UK will still be considered as an international flight.
Chiefly
The legislation requires the airline to operate ‘chiefly’ on international routes and HMRC
interpret the word ‘chiefly’ to mean that the international flight operations exceed the UK
domestic flight operations of that airline.
The ECJ case of Cimber Air (C382/02) found that this measure could primarily be determined
by the turnover of the respective operations but did not rule out other tests. These can be
either applied in conjunction with or separate from the turnover and with each other.
Examples of other tests can include:
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Number of flights
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Number of seats
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Number of passengers
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Volume of freight
including also as a function of the distances travelled
The important point is that the test and the result is fair and reasonable and are readily
verifiable from the records and that it relates to the flying operations.