Flybe saved by deferral of £106m flight tax bill

The government has caved into pressure from regional UK airline carrier, Flybe, which was flying in the face of potential administration, delaying payment on a £100m plus tax bill for airline passenger duty

It is understood that Flybe was facing a bill for airline passenger duty (APD) of £106m, for the flight tax charged on all domestic flights departing UK airports, which could be deferred for up to three years, dependent on Flybe raising more capital from shareholders and investors.

The APD rate is paid on all tickets bought by passengers flying on any flight departing and returning to the UK. The payment is made directly to the airline by a passenger when a ticket is purchased and then the airline has to pay the tax to HMRC so it is possible to build up an arrears. Due to confidentiality, HMRC cannot comment on individual cases.

For a single domestic flight, the APD rate is £13 for economy, and £26 for business/first class tickets. Effectively this means that any internal return flight is taxed £26 per passenger for economy travellers. The rate has been frozen since Budget 2018. 

Under usual circumstances, when a company owes tax, it needs to negotiate a time to pay arrangement with HMRC which is negotiated on a case-by-case basis. 

An HMRC spokesperson told Accountancy Daily: 'This enables the business to pay everything that it owes through a payment plan, and return to a stable financial footing, paying its tax on time.' 

At the end of 2018-19, HMRC had more than 700,000 time to pay arrangements in place to support taxpayers who were unable to pay their tax bills. 

Following government intervention, the Treasury has confirmed it will review APD before Budget 2020.

The Treasury will review APD to ‘ensure regional connectivity is strengthened while meeting the UK’s climate change commitments to meet net zero by 2050’ and will announce any revised measures at Budget 2020 in March.

Flybe is Europe’s largest regional airline and flies to a number of regional routes that other providers do not serve. Following the talks, which have involved four government departments, including BEIS and the Department for Transport, Flybe has confirmed it will continue to operate as normal, preserving flights to airports such as Southampton, Belfast and Birmingham. It flies to 28 UK regional airports.

British Airways has lodged a formal complaint with the European Commission over the APD decision, citing that the government move was unfair state aid intervention.

Business secretary Andrea Leadsom said: ‘I am delighted that we have managed to reach an agreement with Flybe shareholders to keep the company in operation, ensuring that regions across the country can continue to be connected.

Business secretary Andrea Leadsom said: ‘My department and others across government have worked tirelessly in an incredibly short timeframe. This will be welcome news for Flybe, their customers and dedicated employees, as well as those in the supply chain. We will continue to work with Flybe and regional operators to find a sustainable long-term future.’

Flybe was set up in 1979 and is the largest independent airline in Europe and handles eight million passengers a year between 71 airports across the UK and Europe, with over 189 routes across 12 countries. It flies to 28 UK airports.

However, it reported losses of £48.5m in 2017 and £9.4m 2018, and last July it was bought for £2.2m by Connect Limited, a consortium led by Virgin Atlantic, which paid £2.2m for the company. The airline was due to be rebranded as Virgin Connect later this year.

The last half yearly report – March 2019 – showed half year revenues of £409.2m, a 2% drop over the six-month period, with profit before tax of £7.4m.

At the time, the company reported a worsening debt position with net debt of £82.1m, including £70.6m in cash (March 2018: £59.1m including £95m cash), which it said ‘reflect[ed] the seasonality of cash and adverse sterling movements’. The average revenue per seat was £60.18 with a load factor of 84%, up 8% from the previous year.

The company, which is audited by PwC, delisted from the London Stock Exchange in March 2019.

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