The Gazette 1988

DECEMBER 1988

GAZETTE

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

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 295

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

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

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