Are monthly franchise fees tax deductible?
Launching your own franchised business will be one of the most exciting points in your life, but you’re sure to have lots of unresolved queries which need answering beforehand. As a franchisee, you will be able to depend on your franchisor for a variety of business-related services and advice, although they probably won’t want to get involved too much in your accounting or tax affairs.
If you’re wondering whether your monthly franchise fees will be tax-deductible, our short guide answers this query:
Can I claim on my tax return for all fees associated with starting my franchise?
All franchise business startups are similar to any other type of UK business start-up. Your franchisor will charge an upfront cost upon selling the franchised operation to you. This upfront cost is likely to consist of a variety of elements, such as:
– Training and learning materials
– Location finder fee
All these above elements have different tax classifications, some are tangible assets, some intangible, while others may be classed as capital expense items. This means you’ll need to treat them differently in your accounts. While most of these franchise elements can be claimed as legitimate startup items in your business accounts or self-assessment returns, you may not be able to claim back the entire amount spent on capital expenses in the first year. The HMRC guidelines provide details of the totals that can be put through annually, and any excess amount of capital laid out will need to be put through your accounts in the following years (helpful information).
What about my monthly franchise fees? Are these tax-deductible?
Of course, legitimate business expenses are tax-deductible, so your monthly franchise fee for any royalties due to the franchisor will be tax-deductible and can be added into your accounts at the time they are paid out. Your franchise royalty fees will relate to the use of the franchisor name and any other regular services. They could also include a proportion of any sales made.
It could be said the issue of franchise fees being tax-deductible becomes a little blurred if they include a proportion of your start-up costs. For example, if an element of the monthly franchise fee relates to charges for capital equipment, such as catering appliances, you could go over the allowable annual limit. Consult the HMRC guide for more information, or you could speak to an accountant to discuss your query in greater detail.
For a list of useful franchising contacts, take a look around the Quality Franchise Association partners directory.