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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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