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GAZETTE
DECEMBER 1988
Tourism and the
Business Expansion Scheme
How wo u l d you l i ke t o invest £ 2 5 , 0 00 in a bus iness at
a net cost t o you of only £10 , 500? That t ype of ques t i on
wo u l d usual ly make you a l i t t le susp i c i ous of t he asker.
It sounds like a good open i ng f o r a con -man, perhaps
a little t oo good. Too good t o be true. But it is a legi t imate
ques t i on and such oppor tun i t i es do exist t hanks t o a very
generous tax concess i on wh i ch has recent ly been
ex t ended t o t he t ou r i sm area. That pu ts it w i t h i n t he
reach of a far greater number of people t han heretofore.
Previously the concession was opportunity to spread the risk over
only available for investment in
m a n u f a c t u r i ng
and
c e r t a in
international traded service projects,
such projects were difficult to set
up wh i ch meant that those making
use of the concession had usually
to invest in someone else's project.
And the number of those around
was limited. It was also true that
many investors did not like the idea
of t a k i ng m i n o r i ty s t akes in
relatively small ventures into wh i ch
they could be locked at the mercy
of the promoters.
But those drawbacks have been
effectively removed. There are now
great opportunities for a family
group, or a group of individuals, to
get together to set up their own
project in the tourism area and
benefit from the very attractive tax
relief in the process. It is that tax
relief wh i ch can enable an indivi-
dual to put £ 2 5 , 0 00 into such a
project at a net cost of only
£10,500.
The concession is available under
the Business Expansion Scheme
wh i ch was initially introduced to
promote investment in manufac-
turing industries. The early scheme
was limited by the t ype of project
it covered and by strict rules wh i ch
required t hat investors be at arms
length remove f r om the project.
That effectively prevented those
actively involved in a project f r om
making use of the concession. But
that is no longer the case. The
scheme has been eased in other
ways too. First it was extended to
i n c l u de i n t e r n a t i o n a l ly t r a d ed
services and more recently to
include tourism ventures aimed at
bringing revenue f r om overseas.
From the beginning funds were
set up providing investors w i t h an
a number of qualifying projects and
a number of companies had public
issues of shares wh i ch qualified for
the relief. These included the
Strongbow film company and the
Equitas funds.
While providing an opportunity to
make use of the tax relief, all these
funds and companies effectively
diluted the benefit because of set-
up charges, management fees and
special built-in concessions for the
promoters. Of course, promoters
can be expected to claim a better
return than sleeping investors. But
how much better if the investor and
promoter can be one and the same.
That was always possible but t hen
projects in manu f a c t u r i ng and
traded services were hard to find.
That is not the case w i t h tourism.
There are, of course, rules and
regulations to comply w i t h, but
they are far f r om onerous. It is
possible to keep a company in
family control and a w i de range of
tourism projects will qualify: the
p r o v i s i on of a c c o mm o d a t i o n,
boa t s,
c r u i s e r s,
c a r a v an s,
equestrian centres, sailing, marina
facilities, heritage houses, game
fisheries, international conference
centres, tourism guide agencies,
tour coaches etc.
The project must be approved by
Bord Failte who require that a three
year marketing and development
plan be submitted. There are upper
limits on the proportion of the
funds raised which may be invested
in buildings and land - up to 7 5%
in the case of cottages, apartments
or hostels w i th lower proportions in
other cases - and at least 8% of
the money must be spent on pro-
moting the undertaking overseas.
It is necessary to set up a
c ompany since t he qua l i f y i ng
investment must be in ordinary
shares. The investor may not hold
more than 3 0% of the ordinary
shares but he or she can be a
director or employee and there is no
restriction on a husband own i ng
3 0% and his w i fe another 3 0%
w i th other family members holding
the other 4 0%. The company does
not have to be a new one either but
the project does have to be either
new or an expansion which is going
to create or maintain employment.
A p r o j ect w h i ch w i ll e x pand
existing sales can qualify.
Tax relief is available on an
investment, or investments, of up
to £25 , 000 in any one tax year, but
u n u s ed relief can be ca r r i ed
forward to a subsequent year - up
to and including 1990/91 under
present legislation. It may, or may
not, be extended. So if the gross
investment is greater than £25 , 000
the unused proportion can be
carried forward, or if the investor's
income is not able to absorb the full
relief, any unused can equally be
carried forward. The relief will be
given right away in the case of an
established company while a new
company has to be trading for at
least four months.
The shares have to be held for at
least five years to get the full tax
relief. They may be sold before that,
but some, or all, of the relief is likely
to be w i t hd r awn. Profit on the sale
of shares may be liable to capital
gains tax in the normal way but the
purchase price is taken to be the
full gross amount paid for t hem i.e.
w i t hout taking account of the tax
relief.
So, how do you go about making
use of the relief. The first step, of
course, is to identify your project.
That is up to you. The next step is
to draw up your development and
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