When an aircraft comes off lease – planned or not – there is a taxable event. Often, when the lease return is planned, the taxable event is managed swiftly and without concern. However, during unplanned returns – which were seen during the global pandemic and more recently with the Ukraine conflict – the VAT liability of the lessor can be overlooked causing a huge potential problem.

Mark Byrne, a director at Martyn Fiddler Aviation explained:

“It is illegal to travel in an untaxed means of transportation in the EU and UK. This includes all aircraft regardless of whether they are private or commercial. The majority of commercial lease aircraft are being operated by an airline (and therefore on its AOC) and have mitigated VAT as a result. However, during an unplanned lease return the aircraft will come off the lessee’s AOC. At the moment the aircraft is removed from the AOC and back into the control of the lessor, a taxable event occurs which needs to be managed or VAT will be due.

The average VAT in Europe is 20%. If a lease return is not managed properly, VAT will be due on the full value of the aircraft. And while many lease returns are transactionally managed to occur simultaneously with a new lease; recent events have caused significant disruption. Most lessors would like to either mitigate the VAT liability or mitigate the payment; and this is where you need an VAT specialist.

Martyn Fiddler Aviation has the only VAT specialist tax practice focusing purely on aviation, and our experts are also able to implement many of the customs processes need to mitigate, defer or process VAT payments in Europe. We are increasingly advising regional airlines and lessors regarding their options in these turbulent times.”

If you require the expert advise of the Martyn Fiddler Tax team please don’t hesitate to contact Mark Byrne at mark@www.martynfiddler.com or call +44 7341 088382 to arrange a meeting.