BUSINESS EXPANSION SCHEME – DO YOU QUALIFY?
In the first of a series of investment focused pieces, Declan Dolan takes a closer look at the Business Expansion Scheme.
Wary investors are treating today’s market with extreme caution and who can blame them? After all, the turbulence of the last three years hasn’t exactly inspired confidence – even those at the higher end of the risk profile are scaling back after, in many cases, suffering huge losses in their portfolios.
However, there are still opportunities out there for those with the means and the will to invest. The Business Expansion Scheme (BES), for example, is one. Set up as an incentive for individuals to invest in a new enterprise or business idea, the BES allows investors to offset their investment amount against their existing PAYE or other taxable income for the year.
As a tax relief mechanism, it is quite an attractive scheme from two perspectives. Firstly, if an investor puts in €10,000 into a BES, for example, he/she is entitled to offset that amount in full against his/her total income. Secondly, 41% of that investment can be reclaimed through a PAYE tax refund meaning the cost of the initial investment is reduced by 41% as long as there are sufficient earnings in the high income tax bracket to absorb the full amount.
For companies too, the benefits are numerous, not least the marketing opportunities that come with being accepted for the scheme. Once a business idea or innovation has been rubber-stamped by the Revenue Commissioners, the business will immediately start attracting the attention of outside investors. However, it’s not the case that every company will secure investment – but if the idea is strong enough, is innovative, brings forward a product or service that does not currently exist and, perhaps most importantly, is exportable, then the chances of investment increase significantly.
In general terms, the BES offers benefits to both the company and private investor but more needs to be done by tax advisors and by government to make people more aware of the opportunities that exist within it. Since it was launched in its current format in 2007, very little has been done to promote the scheme, and so, in my opinion, while I believe it is an excellent vehicle for all concerned, it really hasn’t worked in terms of the reach it should have achieved.
One instance of where it has worked was when a client of DCA Accountants and Business Advisors came up with an idea of producing an infra red, energy efficient product for rooms in homes without radiators. We felt at the time that the product could qualify for BES relief, which we applied for successfully – we subsequently obtained a €20,000 tax rebate for the client. Up until that point he wasn’t aware of such reliefs, which highlights the point that not enough professional advisors are making their clients aware of all of the options available to them.
On the face of it, the BES seems very appealing but don’t be fooled – it is extremely difficult to obtain and not every project will qualify. While the Revenue Commissioners are certainly widening the net in terms of the types of projects that can apply, the process can be a slow and frustrating one. But we can help. With our extensive experience in applying for the scheme, our experts can tell pretty quickly whether or not a project will qualify. We’ll also look at each application on a case-by case basis without charge so there’s really nothing to lose. However, if your project is innovative enough, there is certainly everything to gain.
Declan Dolan,
Partner,
DCA Accountants and Business Advisors
