Franchise fee.

Franchise fee.

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New client purchased 10 year franchise fee for his soon to be new company.

However the franchisor only accepts individuals as franchisees regardless of how they choose to legally operate. Hence the client (the managing director) paid for the franchisee himself several months before he had even set up and incorporated his limited company. The new company has since reimbursed the director.

Just trying to think this through clearly and probably not best late at night! The fee is billed to the director. Would it be correct to debit intangible assets and amortise the fee over 10 years (and disallow the charge for tax as bought personally) or simply debit director's loan a/c?

Another colleague has suggested he would write off the fee to the p&l and just add back the cost in the tax comp as once paid the fee is worthless.

Advice appreciated. Thanks.

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By JimFerd
19th Nov 2015 13:43

Hmm

I'm not really sure on this one, but I'll comment to get the ball rolling.

I'd suggest your client is out of luck with any income tax relief on it, other than perhaps any loan interest he paid to initially pay the fee.

The reason I think he's out of luck, as it sounds by your statement that the company can't actually own the intangible asset, as this seems to be prohibited by the franchisor - due to this it can't really be "sold" to the new company.

You might be able to charge a rent to the company for the use of the franchise (if the terms allow for that), but that wont help offset the capital cost of the initial fee.

As I say though, I'm really guessing here - so hopefully someone with a little more knowledge on the subject can help.

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