Tax treatment of franchisor holding franchisee money

Tax treatment of franchisor holding franchisee...

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I have a new client who is going to sell franchises as part of their business. 

The way the business model will work is that the franchisee will use the website of the franchisor to set up contracts between themselves and the end user (members of the public in the franchisee's locality). However the end-user will pay the franchisor through the website who will then pass on these fees to the franchisee minus their percentage. 

In my mind (and ideally) the franchisor will treat this money coming in as a creditor to the franchisee (as they are simply holding their money) and not a sale and as such will only need to charge VAT on the fee that they charge the franchisee.

The franchisee is likely to remain below the VAT threshold in each case.

Am I missing something? 

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By WhichTyler
15th Jun 2015 19:46

Have you...
...read the contract terms between all the parties. They may be at odds with 'how the business model is supposed to work'.

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