UK to charge Air Passenger Duty on business jet flights

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The UK will charge each business jet passenger up to a maximum of £150 ($245) to fly from the country. Corporate aircraft were originally excluded from Air Passenger Duty because their contribution was too low. In total the tax will bring in less than £200 million each year.

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George Osborne, the UK Chancellor of the Exchequer, today announced that business jet passengers on flights from the UK will be expected to pay Air Passenger Duty for the first time.

The maximum Air Passenger Duty that a business jet passenger is likely to have to pay is £150 ($245).

In his 2011 budget announced today Osborne said the government will launch a consultation on reform of Air Passenger Duty. “The Government wants a simple tax system for air transport services which does not hamper growth, which ensures a fair contribution toward the public finances and which will support the reduction of global emissions,” said Osbourne. “The consultation includes plans to extend the tax system to flights taken aboard business jets for the first time.”

Air Passenger Duty is charged to each passenger and is calculated by determining the distance the aircraft is flying and the class of travel the passenger is flying in. It only applies to flights from the UK.

The government had hoped to base the tax on a per-plane basis, rather than charging each passenger, however it believes that would not be possible under the 1944 Chicago Convention.  

“I am actually cautiously optimistic. They now rightly accept that a per-plane tax is illegal,” said Guy Lachlan, chief executive of the British Business & General Aviation Association. “However, whilst we accept it looks odd that business jets do not pay it, we don’t like UK-only taxes and don’t agree with Air Passenger Duty being added on top of European Emissions Trading System if it is an environmental tax.”

Whilst the amount being charged is unlikely to affect passenger demand Lachlan has concerns about implementing the new tax. “It will definitely be an added administrative burden for many other operators who will now have to act as tax collectors and there is a real concern that these things tend to be over complicated,” he says.

Lachlan says that the administrative cost of complying with the EU Emissions Trading System can be 10 times the actual cost of buying the carbon.

The Office for Budget Responsibility estimated that airline’s contributions to Air Passenger Duty would be worth £3.6 billion in 2015-16. Business jets account for between 6% and 7% of flights. However less passengers fly on jets so the new rule is likely to bring in significantly less than £200 million each year.

Business jets were left out of the original Air Passenger Duty scheme because of the cost of implementing the tax compared to the revenue received – even though Her Majesty’s Revenue and Customs spends less money collecting Air Passenger Duty than any other UK tax.

Osborne said in his budget announcement that Air Passenger Duty will not rise in 2011 or 2012. However, it did go up 113% in November 2010 and it will rise in April 2012 to reflect changes to the retail price index, which is used to gauge inflation.

Many airlines argue that it is not an environmental tax and have asked the government to end it. Mike Carrivick, chief executive of the Board of Airline Representatives in the UK  said: “The Chancellor’s decision not to increase APD is a welcome development but does not go far enough. The UK travel industry already pays the highest aviation taxes in Europe and the existing APD levels do not take into account the EU Emissions Trading Scheme (EU ETS) which airlines will pay into from January 2012. Other EU countries have reduced or are removing existing taxes prior to the introduction of EU ETS.”

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