CA23783 - Plant & Machinery Allowances (PMA): Long-life assets: Aircraft purchases from 1 July 2014

HMRC previously viewed jet aircraft over a certain size to be long life assets, see CA23781. HMRC conducted a review of the industry in 2014 and the facts relating to new aircraft at that time; for expenditure incurred on or after 1 July 2014, you should no longer assume a useful economic life of 25 years or more, but consider whether a new jet aircraft is a long life asset or not based on the facts of the particular aircraft and its use or intended use. The guidance on this page should be applied for aircraft purchased on or after 1 July 2014. For expenditure on jet aircraft before this date, see CA23781 and CA23782.

The useful economic life of a jet aircraft may be more than 25 years depending on how it is used.

Useful economic life of a jet aircraft will depend on the pattern of use by the owner. The owner’s own assessment of the likely useful life should be taken into account when considering whether a jet aircraft has a useful economic life of at least 25 years or not.

CA23720 tells you that the definition of useful economic life is the same as that used in accounting standards in certain circumstances. Where an owner of jet aircraft draws up accounts under UK GAAP or IFRS, you should consider their estimate of the useful economic life of new aircraft used in their company and consolidated accounts (if these are different then you should find out why).

If a company’s accounting estimate of the useful economic life of the fuselage is at least 25 years then you should treat the jet aircraft as a long life asset.

If a company’s estimate of the useful economic life of the fuselage of a new jet aircraft is less than 25 years and the residual value is based on scrap then you should normally accept that the jet aircraft is not a long life asset.

If a company’s estimate of residual value of the fuselage is based on a second-hand sale of the aircraft then you should ask for more facts to establish whether it is reasonable to expect that the total useful life (including the use by subsequent owners) of the aircraft is at least 25 years.

Where you cannot establish if the aircraft is a long life asset or not by exploring accounting policies, you should consider the following information:

• Any available industry data on the useful economic life of similar aircraft;
• The operating model and utilisation of aircraft by the person incurring expenditure;
• Any regulatory requirements likely to impact upon useful economic life (e.g. in relation to age, noise, emissions);
• The options available to customers in disposing of their aircraft assets (e.g. evidence of a viable second-hand market)

You should talk to the owner of the jet aircraft to establish what assessments they have made of the likely life of the aircraft in use and what is likely to be done with the aircraft after it ceases to be used in the current owner’s qualifying activity.

An aircraft purchased in its ready-for-service configuration is a single entirety and so the expenditure should not be split between long life and normal life asset treatment.

The engines, interiors, landing gear and all other components fitted to the aircraft are part of the aircraft and not entireties in their own right.

Where engines or other components are acquired separately to the ready-for-service aircraft you should consider whether this expenditure constitutes a repair, for example directly replacing a faulty component on a jet aircraft, or capital expenditure (BIM46900+), for example to add to a pool of engines held by the customer. Do not accept that engines or other components purchased under separate contracts to the fuselage can be treated as separate entireties if they are purchased for installation in a new fuselage purchased without engines.

If, on the facts, an engine is an entirety in its own right the useful economic life of the engine should be considered as a separate entirety. You should always consider the facts of each case but it is unlikely that an engine would constitute a long life asset.

You should consider the guidance at BIM46925 in relation to any purchased component and whether this represents an improvement to an existing aircraft or a repair using modern technology.