A Complete Tax Guide for Airline Pilots - updated for 2024/25 tax year. - ESDG Accountancy

A Complete Tax Guide for Airline Pilots – updated for 2024/25 tax year.

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Ed, Chartered Accountant

The UK Tax system is complex, especially for airline pilots with unique employment conditions and expenses. This article, updated for the 2024/25 tax year, aims to clarify tax obligations, allowances, and reliefs available to pilots in the UK.

As a UK Chartered Accountancy practice, ESDG Accountancy is dedicated to helping business owners and professionals, including many airline pilots, manage their tax affairs efficiently. We are well placed to help you with your tax affairs so please get in touch if you think you could benefit from working with us.

Income Tax Overview

Understanding Income Tax

The UK tax year runs from 6 April to 5 April the following year. Income tax is calculated based on the total income for this period, excluding exempt income like statutory redundancy payments, gambling winnings, and certain allowances.

For 2024/25, the personal allowance is £12,570. However, this is gradually reduced for individuals earning over £100,000, tapering to zero for those earning over £125,140. Many pilots will fall into this category and should be aware of the 60% tax trap.

Income is categorised into:

  1. Earned income (e.g., salary)
  2. Investment income (e.g., bank interest)
  3. Dividend income

Different rates apply based on the taxpayer’s residence:

  • Basic Rate: 20% for earnings between £12,571 and £50,270
  • Higher Rate: 40% for earnings between £50,271 and £125,140
  • Additional Rate: 45% for earnings above £125,140.

Key Tax Considerations for Pilots

Benefits-in-Kind and Salary Sacrifice

Pilots may receive various benefits-in-kind, such as company cars or private medical insurance. These are taxable and must be reported on a P11D form by the employer. You will need to ensure this is entered onto your year end tax return. Salary sacrifice arrangements can also impact taxable income and should be carefully managed.

Child Benefit Clawback

If your income exceeds £50,000, you may be subject to a child benefit clawback. This high-income child benefit charge can reduce or eliminate the benefit received.

The Fixed-Rate Expense (FRE) Allowance

What is FREA?

The Fixed-Rate Expense (FRE) allowance is a specific allowance for uniformed commercial pilots and co-pilots, which helps cover job-related expenses without needing detailed receipts. As of 2013, the FRE for pilots is £1,022 annually, plus an additional £110 for travel expenses.

In addition to FRE allowance, pilots can also claim many other costs they occur where their employer does not reimburse the cost. This is covered in more detail later on.

Care should be taken to ensure that each expense is in fact allowable under HMRC – for example, HMRC expressly say that the cost of luggage for airline pilots is not an allowable expense for tax purposes.

Further and more formal information can be understood about the FRE can be understood by reading HMRC manual EIM50050 or referring to your BALPA Tax Guide Guide.

Claiming FRE

Pilots can claim the FRE for up to four previous tax years, and could be worth in excess of £500 in tax credit per year depending on your marginal tax rate and circumstances.

Other Employment Expenses

Allowable Expenses

Apart from FRE, pilots can claim other employment expenses, provided they are “wholly, exclusively, and necessarily” incurred for their job. These include:

  • Travel and Subsistence: Costs related to temporary workplaces, such as training locations.
  • Self-Funded Training: Tax relief may be available for self-funded training expenses.
  • Uniform and Equipment: Replacement of uniforms and necessary equipment like noise-cancelling headsets.

Claiming Process

Claims can be made via a Self-Assessment Tax Return, a personal tax account with HMRC, or by submitting a form P87. For claims exceeding £2,500, a Self-Assessment Tax Return is mandatory.

Flight Duty Allowances and Sector Pay

Overview

Flight Duty Allowances (FDA) and sector pay cover costs incurred during time away from base. These allowances are typically agreed upon between airlines and HMRC. Pilots should keep detailed records and receipts of these expenses to ensure they receive the correct tax relief.

Individual Claims

If the standard FDA does not cover all expenses, pilots can submit individual claims based on actual expenditure. Keeping meticulous records is crucial to support these claims.

Residence and Domicile Issues

Determining Residency

Residency status affects how income is taxed in the UK. The Statutory Residence Test (SRT) helps determine whether a pilot is resident or non-resident for tax purposes. The test considers factors like time spent in the UK, employment location, and personal ties.

For those looking to move abroad to take advantage of lower tax rate, ESDG Accountancy assists many clients with their moves to Dubai.

Tax Implications

  • UK Residents: Taxed on worldwide income.
  • Non-UK Residents: Taxed only on UK-sourced income.

Remittance Basis

Non-domiciled pilots can opt for the remittance basis, paying UK tax only on income brought into the UK. However, this may involve additional charges after a certain period of residency.

Frequently Asked Questions

Can I claim the Fixed-Rate Expense Allowance (FREA) for previous years?

Yes, you can claim FREA for up to four years retrospectively.

How do I claim my BALPA subscription as a tax deduction?

67% of your BALPA subscription is tax deductible. Enter this amount in the “Professional fees and subscriptions” section of your tax return.

What if my employment expenses exceed £2,500?

If your expenses exceed £2,500, you must file a Self-Assessment Tax Return to claim the relief.

Can non-UK residents reduce their PAYE tax?

Non-UK residents can apply for a section 690 direction to reduce PAYE on income earned outside the UK. This requires employer initiation and HMRC approval.

Are CAA fees tax-deductible?

Yes, fees paid to the Civil Aviation Authority (CAA) are deductible as they are required for professional duties.

What are the most common methods for Pilots to reduce their tax liability?

Other than ensuring you are claiming your FRE and associated expenses, the most effective form of tax relief is usually through pension contributions. This can allow tax relief of up to 60%.

Can you help me trade through a Limited Company?

Airline Pilots are more commonly now choosing to operate via Limited Companies. ESDG Accountancy assist a number of Pilots in this area and we can help with everything from a new Limited Company incorporation to year end returns and tax planning.

We are Chartered Accountants for Airline Pilots…

For more detailed assistance whether you need help with your personal tax return, pension contributions, or just generally keeping tax efficient, consider consulting with a professional tax advisor. ESDG Accountancy is here to support you with tailored advice and services.

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This guide provides general information and does not constitute professional tax advice. For personalized advice, please consult a qualified tax professional.

For further reading, visit ESDG Accountancy’s Articles and our Services Page.

About the author

Ed is qualified Chartered Accountant and founded ESDG Accountancy in 2020. He has gained extensive experience in various sectors, working with business owners, international groups, & private equity investors.